Tul­low sinks as cash call sug­gests re­turn to high-spend­ing ways

Financial Times Middle East - - Markets & Investing - Bryce El­der

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.

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