Canaccord downgrades BG Group to 'hold', sees limited upside after Shell offer

A counter offer for BG Group looks unlikely, according to Canaccord Genuity, which downgraded its rating on the natural gas company from 'buy' to 'hold' after Wednesday's takeover offer by Royal Dutch Shell (RDS).

BG was trading 37.3% higher at 1,250p by 10:11 after RDS offered the equivalent of 1,350p per share in cash and stock, a 50% premium to its closing price of 910.4p on Tuesday.

This was well ahead of Canaccord's risked sum-of-the-parts target price of 1,016p which if fully de-risked is 1,270p. This is based on oil being a $80 a barrel (bbl) in the long term; RDS, however, valued the group assuming oil at $90/bbl.

Canaccord analyst Richard Griffith said: "If we run the RDS assumptions then our de-risked value would rise to 1499p/sh. So, RDS does not look like it is overpaying if you assume $90/bbl long term."

The broker has lifted its target price to 1,300p "based on RDSB share price and deal metrics", but this represents just 3% potential upside to the shares after Wednesday's surge.

Griffith said: "We cut our recommendation from 'buy' to 'hold' and would only subscribe to remaining buyers of BG in the event of a counter offer which we believe seems unlikely looking at the current share price trading at a discount to the deal metric value."