Gas resists the pressure
Sunday 22 June 1997
But as any BG shareholder is no doubt aware, the share has been on an almost vertical ascent from the dark days of a year ago, when it languished at 123p.
It would seem that the market believes the future is not so bleak as was feared. Indeed, the shares, now 217.5p, added another 6.5p after the report came out.
Yet what the MMC has imposed is pretty drastic, at first sight, and on any second reading. Essentially, the MMC confirmed the earlier proposal by Ofgas. The value of the pipelines operated by BG's Transco subsidiary has been slashed to pounds 11.6bn, from the pounds 17bn in the report and accounts.
BG revenues will be cut by 5 per cent in the current financial year and 7 per cent next year. This means pounds 184m off sales this year and, depending on how you calculate it, an average annual loss of pounds 380m until 2002.
As predicted by the City, the dividend will be savaged, and is likely to be halved this year, from the 18.125p gross it paid in 1996.
It is not all bad. BG wanted as high a value as possible attributed to Transco, but reducing its value also cuts the annual depreciation charge. It may sound like accounting trickery, but the benefit to BG's bottom line will be tangible - around pounds 300m.
In fact, analysts look to be raising their dividend estimates. There is a consensus for a net dividend of around 8p - up from previous estimates of 5p to 7p.
If that is so, BG yields 4.6 per cent - higher than the market, although somewhat lower than the 6 per cent on offer from most other utilities.
Alternatively, look at the asset value of the company. Capitalised at pounds 9.7bn, the underlying value of the business may be far more. Exploration and production could be worth pounds 4bn. Add on pounds 11.6bn for the pipeline, subtract debt, and you have a figure of pounds 12bn - a 20 per cent upside on valuation grounds alone.
The MMC report provides some much-needed certainty. And the potential for further swathes of job losses should boost profitability.
There is still the matter of a windfall tax in the Budget on 2 July, though this should be a relatively minor blow.
The shares are a weak buy.
Diving in at the deep end is no excuse for shirking the style stakes
- 2 PornHub begs users to stop uploading video clips of Brazil getting beaten 7-1
- 3 Why I'm on the brink of burning my Israeli passport
- 4 L'Oreal cuts ties with Belgium supporter Axelle Despiegelaere after hunting trip photographs
- 5 The true Gaza back-story that the Israelis aren’t telling this week
Instagram of US airport security chiefs: Lipstick knives and IED training kits among items seized
Game of Thrones author George RR Martin says 'f*** you' to fans who fear he will die before finishing Westeros saga
Loom bands: Bids for dress made from colourful rubber reach almost £154,000 on eBay
Israel-Gaza crisis: Eight killed in Gaza Strip cafe while watching World Cup semi-final
Supermoon 2014: When and why will the moon look bigger and brighter this summer?
Sustained immigration has not harmed Britons' employment, say government advisers
Australia facing international condemnation after turning around Sri Lankans at sea
7/7 memorial defaced on anniversary of 2005 attacks with ‘Blair lied thousands died’ graffiti
Even when it brutalises one of its own teenage citizens, America is helpless against Israel
Socialist Worker called to apologise over ‘vile’ article saying Eton schoolboy Horatio Chapple's death is ‘reason to save the polar bears’
There’s a nasty smell in the political air – and it’s coming from the Tories
iJobs Money & Business
£50000 - £70000 per annum: Harrington Starr: Business Analyst Consultant (Fina...
£300 - £350 per day + competitive: Orgtel: My client, a leading bank, is curre...
£28000 - £32000 per annum + pension, 25 days holiday: Ashdown Group: A highly ...
Negotiable: Randstad Education Birmingham: Randstad Education are seeking a Fi...