Tullow sinks as cash call suggests return to high-spending ways
Tullow Oil hit a seven-month low yesterday amid fears that its $750m cash call signals a reversion to its highspending past.
Last week’ s decision by Paul McDa de, incoming chief executive, to launch a rights issue has undermined Tullow’s investment thesis of organic debt reduction and production growth, said Merrill Lynch. Shareholders will be paying a heavy price, with the share count increasing by 50 percent, just to hit a year-end debt reduction target that would have been reached anyway by mid-2018, it forecast.
“With‘ growth’ mentioned numerous times on Friday’s conference call, we believe new management maybe tempted to prioritise growth [and] exploration at a time when investors are looking for free cash flow,” said Merrill.
“We are concerned about a potential loosening of capital expenditure discipline established over the last three years.”
Tullow closed 2.4 per cent lower at 197.5 pin a mixed wider market that found support on a weaker pound. The FT SE 100 edged 4.85 points higher at 7,429.81, another record high.
AB Foods climbed 1.6 per cent to £26.59 after Gold man Sachs added the P rim ark owner to its “buy” list with a £30 target.
With group earnings growing at 10 per cent per annum, AB could be sitting on £2bn of net cash by the end of 2021, it forecast. Primark’s return to like-forlike growth since September shows its discount pricing and short lead-time supply chain remains differentiated from the wider retail sector, said Goldman. And unlike peers, P rim ark’ s guidance assumes its will absorb cost inflation this year rather than try top ass it onto consumers and suppliers, said the broker.
Diageo hit a record high, up 0.4 per cent to £23.28. Kathryn Mike l ls, Diageo’s chief finance officer, told a London conference that cost savings are on track and second-half prospects look stronger, with price cuts for Smirnoff and Captain Morgan in the US helping to slow declining volumes.
Nostrum Oil & Gas dropped 5.8 per cent to 442.6 pa ft era Kazakhstan court froze the 13.5 percent stake in the explorer belonging to Frank Mon st rey, the company founder and chairman.
The court order was in connection with proceedings begun by B TA Bank against Mukh tar Ably azov, the Kazakh tycoon and dissident.
Security outsourcer G4S faded1. 8per cent to 295.6 pa ft era down grade to “sell” from H SB C. While G 4 S qualifies as a turn round story, the biggest challenge for investors is to identify the continuing business given a stream of disposal san dan opaque division al reporting structure, H SB C said. It also cited intensifying wage-cost pressures for the group’ s guarding division.