Barclays upgrades BG; sees Shell as main share price driver

Barclays upgraded BG Group to ‘overweight’ from ‘equalweight’ with an unchanged price target to 1,350p, reflecting the value opportunity it sees in Shell and the implications for the BG share price.

Barclays said that with earnings down 65% year-on-year, it’s clear that BG does not have the downstream protection that other businesses do, but it does appear that finally the group is delivering the operational performance and financial discipline the market has been waiting for.

“For the second time in two quarters BG delivered better-than-expected earnings and higher guidance,” it said.

But the main driver of the BG share price is the Shell stock price, given the proposed combination, said Barclays.

“The 30/07 closing Shell B share price implies a BG share price (adjusting for dividends) of 1,180p, close to a 9% premium to the closing price on 30 July and as such we recommend BG shareholders continue to hold the stock to take advantage of the closing arbitrage gap and the potential Shell yield,” it said.

The bank said BG’s integration with Shell should provide significant value opportunities. “The combined BG-Shell should be one of the largest players in the liquefied natural gas market with only Qatar having a larger position.”

At 1122 BST, BG shares were 0.3% lower at 1,089p.