Investment Column: Anyone investing in long-term growth will fuel BG's share price

Reckitt Benckiser; Cineworld
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The Independent Online

Our view: Buy

Share price: 1,378p (+51p)

We have been fans of BG for some time now. And the FTSE 100 listed energy major, which was one of our 10 companies to follow this year, did not disappoint with its third-quarter results yesterday.

The headline numbers were better than expected, with operating profits at $1.86bn (£1.16bn) ahead of the figure pencilled in by City scribblers, but the real star of the show was BG's liquefied natural gas arm. The company now expects the division, which makes up over a quarter of the company's operating profits, to notch up $2.4bn in operating profits for the year, "exceeding previous guidance".

This came after the arm delivered $620m in operating profits for the three months, smashing analyst hopes of up to $570m. The result helped offset the impact of maintenance in the North Sea, which meant that production was only up by 1 per cent in the quarter.

As we pointed out in February, BG's key attraction is its investment in projects that will protect growth going forwards. Think of Australia, where activity on its liquefied natural gas plant, the pipeline and other facilities to do with the project are progressing. Think of Brazil and the work going into developing lucrative oil reserves.

There was no sign of any slowdown in those parts yesterday. And this is important, as it would be imprudent to base investment decisions on the near-term outlook for commodity prices. What matters is the long-term picture, which is positive, given the growing energy needs around the globe. But to capitalise on that, companies like BG need projects that can service those needs.

One final point. BG is currently changing hands at under 1,400p, which puts it well below most analyst target prices. Citigroup, for example, using its discounted cash flow valuation, is targeting 1,550p. Moreover, it trades well below consensus net asset value estimates of 1,750p.

Reckitt Benckiser

Our view: Hold

Share price: 3,330p (-116p)

Reckitt Benckiser, the household consumer goods giant, said it was on track to achieve "another year of above industry-average growth" after delivering barnstorming profit and revenue growth at its emerging market division.

The group said that demand was strong across all its developing regions, such as in China, India and Indonesia. On the product side, it singled out the growth of Dettol, Strepsils, Gaviscon and Veet at its health and personal unit in these regions, while Vanish was the star performer at its fabric care unit.

These helped Reckitt grow its operating profit in developing markets by 48 per cent to £99m, on revenues up 25 per cent to £599m in the quarter to 30 September. However, Europe, and North America and Australia, also made a noticeable contribution, which enabled Reckitt to grow its group net income by 10 per cent to £470m. This was ahead of City expectations of £463m.

Still, the group – which last year acquired the Durex condoms to Scholl shoes group SSL International for £2.54bn – did not totally clean up yesterday, as its adjusted operating margin fell by 40 basis points to 26.3 per cent, dragged down, in part, by Reckitt Benckiser Pharmaceuticals (RBP). Indeed, Reckitt warned that its total growth will slow as it laps the SSL acquisition and the buy back of the distribution rights at RBP's Europe and its rest of the world business. The forward earning multiple of more than 13 also makes us cautious.

Cineworld

Our view: Buy

Share price: 188p (+6p)



Teenagers are often the bane of cinemas but Cineworld yesterday hailed four in particular. While the last instalment in the Harry Potter series, the latest Transformers movie and Rise of the Planet of the Apes all did well, it was the staggering success of The Inbetweeners movie that helped the box office cash registers to sing this summer.

The exploits of Will, Simon, Jay and Neil have almost matched the popularity of The King's Speech and helped the UK's largest cinema chain to lift sales 0.9 per cent in the 42 weeks to 20 October over a year earlier.

The company reiterated that it expects to hit full-year guidance. The rise of 3D, with its premium pricing, has played its part. Nick Batram of Peel Hunt believes there is much more to come for its digital operations "in terms of efficiencies and content".

Whether the chain's high hopes for Tintin, Mission Impossible: Ghost Protocol and Alvin and the Chipmunks 3 will be fulfilled remains to be seen.

That said, it looks undervalued on a price of 9.8 times estimated earnings for the year. But what really makes the case for Cineworld is that, alongside the relatively thin valuation, it boasts a prospective yield of more than 6 per cent. No: that is not a misprint.

This prospective yield of 6.1 per cent offers protection from any weakness in those films. It is also presents an excellent prospect in light of the current stock market volatility.

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