Shares digital

by Tom Sieber

Rumours of another massive resources find in Brazil have prompted Richard Griffiths, energy analyst at Evolution Securities, to slap a buy rating on BG Group. Up from his previous hold recommendation, Griffiths has also hiked his target price for the shares a whopping 25%, from £12 to £15.

The touch paper had been lit under the share price by reports that the Carioca oil field, in which BG has a 30% stake, could contain up to 33 billion barrels of oil – making it the world’s third largest field. The stock reached a record high of £12.97 in response. Some cold water has since been poured on the estimate – although there has been no outright denial by operator Petrobras, it says it needs three months to assess its potential.

Griffiths observes that the Brazilian state operator would have been likely to have made a firm rebuttal if its own assessment was materially different.

He says: ‘What is clear is that there is something big here which has the potential to transform the share price of BG Group. While BG and Petrobras remain understandably cagey about the absolute size, the National Petroleum Agency in Brazil is enthusing about the potential of the Carioca field being up to five times the size of last year’s Tupi find.’

According to Griffiths if this is the case, then even on the most simplistic maths its value net to BG could be in the range of 250p to £15 a share.

Elsewhere he points to the value inherent in BG’s upstream growth, which he says is arguably visible until 2020. He stresses this as a key differentiator from its peers.

And adds: ‘All the key indicators are moving in the right direction for BG even before bid speculation is tossed into the mix.’

Griffiths concludes with this poser: ‘Are we heading for £20?’