LONDON -- Six months ago, shares in BG Group (LSE:BG) (NASDAQOTH:BRGYY) plunged 18% after it warned of reduced production growth. But now, with the stock still 8% below its pre-profit warning level, things are starting to look up.

Last week Deutsche Bank joined the growing numbers of brokers to upgrade BG to a buy, citing improved outlook in the company's two arms: exploration and production, and liquefied natural gas (LNG). It thinks the company's prospects are at a turning point, and the valuation is undemanding. That follows recent upgrades from Canaccord Genuity and Jefferies.

Now some people put store by brokers' recommendations, and some don't. But the upgrades are significant in BG's case because of why its shares dropped in the first place. BG didn't issue a conventional profits warning but told investors that the following year's production would be flat, against expectations of 10% growth.

The markets lost faith in BG's management, and punished the shares. Broker upgrades are an indication that the City is starting to trust the company again -- and that should be good news for the shares.

Back to the future
CEO Chris Finlayson updated investors on BG's strategy yesterday. It plans to shift focus back on its strengths in exploration and its integrated LNG business. That means increasing exploration spend, and "monetizing" the company's assets to reduce capital expenditure and production risk.

It's taking BG back to what it was before it became a victim of its own exploration success. That exposed the company to bigger production challenges than it's been accustomed to.

"Monetization" means bringing in partners to accelerate returns and share risk. Last month saw a great example. BG sold an interest in its Australian LNG assets to China National Offshore Oil Corporation (CNOOC) for $1.9 billion.

At the same time, it secured a deal to sell 5 million tonnes of LNG to CNOOC each year for the next 20 years, making BG China's largest supplier of LNG. The company can source the LNG from anywhere, exploiting the global economics of the LNG market: gas is transported from lowest-cost producer to highest-paying consumer. BG and CNOOC are building a couple of LNG tankers together, too.

BG expects its new measures to deliver positive free cash flow from 2015. It still has big production risk in Brazil, where it's dependent on operator Petrobras (until or unless some of those assets are monetized), but management's confidence is starting to rub off on brokers. The shares are trading on a prospective P/E of 14.6.

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