Edmond Jackson's Stockwatch: BG Group

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Near a recent two-year low, do the FTSE 100-listed shares in integrated natural gas firm BG Group (BG.) qualify yet as a contrarian investment? The price has plunged just recently by over 20% due to a warning of flat 2013 production which jarred against expectations of growth. This shows investors must beware complacency towards so-called "blue-chip" shares; any business can suffer an interruption to progress, especially in resources and where operations are widespread internationally.

In response, some brokers' analysts have downgraded while others are more positive with the price around 1,030p. This is a slight recovery on a recent low of 1,001p, if well down on a 1,547p high during the early 2012 "risk rally". Most of these analysts target prices well over 1,300p although, bear in mind, brokers' very existence is to promote stock and some have been caught with their pants down - recommending BG at higher prices - so there's a credibility aspect to reiterating 'buy'.

From a macro view it is indeed worth watching BG more closely now. Any utility bill payer should know how rising prices point to energy supply issues, which make BG a vital company in the long run. If stockmarket investors are going to fret over a slip in performance then other big operating companies may exploit this for a takeover. BG emphasises that production is not being lost but deferred to future years, except in Egypt where there has been a fall in gas output. Well, any big international resources firm faces such risks. Other BG projects, such as in Brazil and Australia, remain prized.

BG's international spread, with about 80% of last year's revenues outside the UK, can also be seen as a virtue to help protect a portfolio against long-term sterling weakness - now credit rating agencies are threatening to downgrade the UK as the coalition government fails to get a grip on public borrowing and spending.

So these macro themes of essential resources, long-term energy supply and hedging against sterling are useful for portfolio investors to protect their wealth. What is less comforting is when you consider specific aspects of BG's financial profile.

BG Group financial summary
Consensus estimateYear ended 31 December
2007200820092010201120122013Turnover (

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