Right now I’m looking at some of the most popular companies in the FTSE 100 and wider market to try and establish if there is still time for investors to buy in.
Today I’m looking at BG Group plc (LSE: BG) to ascertain if its share price has the potential to push higher.
Current market sentiment
The best place to start assessing whether or not BG’s share price has the potential to push higher, is to take a look at the market’s current opinion towards the company.
At present it would seem that the market is upbeat about BG’s prospects, as there has been some speculation recently that the company could become the prey of a larger peer.
Specifically, the Financial Times reported City traders were betting on the fact that BHP Billiton might make an opportunistic offer for BG, following the sudden exit of BG’s CEO.
Unfortunately, aside from this takeover speculation, BG’s underlying business is struggling. The political unrest within Egypt hit the company’s first-quarter profits as Egypt’s government diverted gas, intended for export, back into the domestic market. Egypt accounts for around 25% of BG’s total oil and gas output.
Upcoming catalysts
It would appear that, based on the events within Egypt and at management level, there are two main catalysts that are likely to affect BG going forward.
Firstly, investors will be able to breath a sigh of relief if there is a resolution to the situation within Egypt and the Egyptian government returns approximately $700,000 owed to the company.
Secondly, as BG is rudderless after the departure of its CEO, the company will need to appoint a new CEO before investors can regain their trust in management.
There is also a third catalyst going forward, the start-up of BG’s multi-billion dollar oil and gas projects within Australia and Brazil. Once these assets come on stream, BG’s cash flows should get a boost and the company will be able to reduce its dependence upon production from Egyptian assets.
What’s more, there has been some speculation that BG is considering divesting some assets in order to boost shareholder returns.
Valuation
BG’s valuation is worrying and implies that the company’s shares are actually expensive. In particular, BG trades at a forward P/E of 18.7 and City analysts expect the company’s earnings to decline by 13% for 2014.
A forward P/E of 18.7 means that BG looks expansive to the wider oil and gas producers sector which trades at an average P/E of only 15.7.
Foolish summary
So overall, based on BG’s high valuation, recent CEO departure and troubles within Egypt, I feel that BG is overvalued at current levels.
