Friday tips round-up: BG Group, Royal Dutch Shell

Markets are understandably concerned by the situation facing BG Group in Egypt. The authorities there have been diverting the gas which should be shipped out to the domestic market instead, which is less profitable for the company. There are positive signs in this regard, but the risk of another write-down does exist. On a more positive note, production at its Brazilian assets has been running ahead of expectations and the first LNG shipment from its Queensland project is on schedule despite industrial unrest.

Markets are understandably concerned by the situation facing BG Group in Egypt. The authorities there have been diverting the gas which should be shipped out to the domestic market instead, which is less profitable for the company. There are positive signs in this regard, but the risk of another write-down does exist. On a more positive note, production at its Brazilian assets has been running ahead of expectations and the first LNG shipment from its Queensland project is on schedule despite industrial unrest.

Nevertheless, the two catalysts which could move the stock, the sale of the 540km pipeline that connects the Queensland project to the mainland and a partial divestment of those Brazilian assets are both still a ways off. Even so, BG still looks good value for those willing to take the long view, "although whether they can beat the jinx by the end of the year is another matter," writes The Times' Tempus.

Royal Dutch Shell's latest set of results beat market expectations, thanks to higher commodity prices, improved efficiency at Shell's Texas Port Arthur refinery and a healthy amount of cost cutting. Nevertheless, the cash flow the company generates still does not cover its dividend payments, were it not for asset sales.

Will management be able to rectify this situation? Traders have given it the benefit of the doubt. Shell has outperformed the MSCI Euro Oil index by over 700 basis points and the stock has now caught up with French rival Total due to its lower exposure to Russia. Traders seem to have chosen well, but there is more to do for management, says the Financial Times' Lex column.

AB

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