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How BG Group plc (BG) Measures up as a GARP Investment

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LONDON — A popular way to dig out reasonably priced stocks with robust growth potential is through the “Growth at a Reasonable Price”, or GARP, strategy. This theory uses the price-to-earnings to growth (PEG) ratio to show how a share’s price weighs up in relation to its near-term growth prospects — a reading below 1 is generally considered decent value for money.

Today I am looking at BG Group plc (LON:BG) to see how it measures up.

BG Group plc

What are BG Group’s earnings expected to do?

2013 2014
EPS Growth (4.0)% 19.0%
P/E Ratio 14.7 12.4
PEG Ratio n/a 0.7

Source: Digital Look

City analysts expect BG Group plc (LON:BG) to post a modest earnings dip in 2013 following three years of consecutive growth. But earnings expansion is expected to resume with gusto next year.

The oil operator’s expected earnings slip this year results in an invalid PEG rating, although this ratio is anticipated to ride into bargain territory in 2014. The firm’s price-to-earnings (P/E) ratio meanwhile is expected to remain above 10 for this year and next — a reading below this is generally considered decent value for money.

Does BG Group provide decent value against its rivals?

FTSE 100 Oil and Gas Producers
Prospective P/E Ratio 15.2 22.6
Prospective PEG Ratio 4.5 1.2

Source: Digital Look

BG Group plc (LON:BG) currently outperforms both the FTSE 100 as well as its oil and gas counterparts on a P/E basis. Still, the firm’s projected earnings drop this year leaves it lagging behind both groups in terms of prospective PEG ratio.

Despite earnings difficulties during the current year, a situation that undermines its position as a potential GARP selection, I reckon that investors should realize sound rewards in coming years as operations at its lucrative assets are ratcheted up several notches.

Oil production expected to surge from 2014
The company has a spate of new oil fields due to come online shortly, from the U.K. to Norway, Thailand to Trinidad. In particular, BG Group plc (LON:BG)’s gigantic Queensland Curtis LNG facility is due to commence pumping as of the beginning of 2014, while production at its offshore assets in Brazil is also picking up the pace.

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