LONDON -- To me, capital growth and dividend income are equally important. Together, they provide the total return from any share investment and, as you might expect, my aim is to invest in companies that can beat the total return delivered by the wider market.
To put that aim into perspective, the FTSE 100 has provided investors with a total return of around 3% per annum since January 2008.
Quality and value
If my investments are to outperform, I need to back companies that score well on several quality indicators and buy at prices that offer decent value.
So this series aims to identify appealing FTSE 100 investment opportunities and today I'm looking at BG Group (LSE: BG) (NASDAQOTH: BRGGY), the gas and oil exploration and production company.
With the shares at 1216 pence, BG's market cap. is £41,214 million.
This table summarizes the firm's recent financial record:
|
Year to December |
2008 |
2009 |
2010 |
2011 |
2012 |
|---|---|---|---|---|---|
|
Revenue ($m) |
12,566 |
15,441 |
17,166 |
17,667 |
18,933 |
|
Net cash from operations ($m) |
4,391 |
5,532 |
6,386 |
6,982 |
7,995 |
|
Adjusted earnings per share (cents) |
91.6 |
100.9 |
118.7 |
125.4 |
129.4 |
|
Dividend per share (cents) |
11.23 |
19.63 |
21.6 |
23.76 |
26.14 |
Last year, BG earned 58% of its operating profit from upstream operations and 42% from its large LNG shipping and marketing business. It's been a heck of a ride for investors sticking with the company since its independent establishment in the mid-nineties: 15 giant discoveries around the world have enabled the firm to add an average 1 billion barrels of oil equivalent to its resource reserves every year for a decade, while running a reserves replacement ratio of almost 200% over the period. Reserves now stand at about 18 billion barrels of oil equivalent, and what that's done for the share price almost goes without saying. I wish I'd had a few resource companies in my portfolio with that kind of performance!
With the recently released strategy update, BG demonstrates that it doesn't intend to take its foot off the gas (so to speak) as it aims to build exploration expenditure up to $1.8 billion per annum over the next three years. I reckon, if past success is anything to go by, there's every reason to be optimistic about the firm's ability to build total returns for its investors from here.
BG's total-return potential
Let's examine five indicators to help judge the quality of the company's total-return potential:
- Dividend cover: adjusted earnings covered last year's dividend almost five times. 5/5
- Borrowings: net debt is around 1.8 times the level of operating profit. 4/5
- Growth: revenue, earnings and cash flow have all been growing steadily. 5/5
- Price to earnings: a forward 12.5 compares well to growth and yield expectations. 4/5
- Outlook: satisfactory recent trading and an optimistic outlook. 4/5
Overall, I score BG 22 out of 25, which encourages me to believe the firm has potential to out-pace the wider market's total return, going forward.
Foolish summary
This is a great set of numbers against my quality and value indicators, which encourages me to believe that, yes, I should invest in BG Group.
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