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Author emaciatedcat     View Profile     Add to favourites     Ignore
Date posted 2018-02-08 09:52
Subject TLW Turnaround? 
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Tullow Oil (LSE: TLW) released its annual results today, with chief executive Paul McDade saying the FTSE 250 firm “made excellent progress in 2017.” As a result, it posted its first annual operating profit in three years.

The shares are up 2% at 187p, as I’m writing, giving the company a market capitalisation of £2.6bn. This is still well below the valuation it once commanded. In an improved oil price environment and after today’s results, is Tullow a top turnaround buy?

Improving performance and bright future
The Africa-focused group’s revenue of $1.72bn was 36% ahead of 2016, as its working interest production surged 32% to an average of 94,700 barrels of oil equivalent per day (boepd).

Despite $682m of write-offs and impairments, it managed a small operating profit of $22m, although after net finance costs of $310m and a tax credit of $111m, the statutory bottom-line was a loss of $189m. However, with the write-offs and impairments being non-cash items, the cash flow picture was considerably better: the company generated free cash flow of $543m.

Tullow got through the oil rout with a millstone of debt, helped by supportive lenders. Net debt remains relatively high at $3.5bn but is falling and is now only just above management’s target level of below 2.5 times EBITDAX (earnings before interest, taxes, depreciation, depletion, amortisation and exploration expenses).

Looking ahead to 2018, the company has guided on production of between 86,000 and 95,000 boepd. City analysts are forecasting earnings per share (EPS) of around $0.20 (14.4p at current exchange rates), giving a price-to-earnings (P/E) ratio of 13. This looks an undemanding rating to me as I see scope for production upgrades this year, while the company’s valuable development and exploration assets bode well for the longer term. As such, I rate Tullow an attractive ‘buy’
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