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Earnings look ahead: Tullow Oil

The major sell-off in the oil market has crippled Tullow’s share price.

Man surveying oil barrels
Source: Bloomberg

Tullow Oil will release its full-year earnings on 10 February, and traders are anticipating revenue of $1.62 billion with an adjusted net loss of $101 million, which compares with last year’s revenue and adjusted net loss of $2.21 billion and $1.47 billion respectively. The company will also announce its second-half numbers of the same date, and investors are expecting revenue of $806 million and an adjusted net loss of $629 million, which stacks up against last year’s revenue of $819 million and a net loss of $29 million.

Tullow Oil’s share price has been trounced by the collapse in the oil market. The company posted an annual loss last year as asset write-downs took their toll on the bottom line. Capital expenditure has been curtailed and costs have been cut, but it wasn’t enough to assure investors, and the stock was dragged lower by the falling energy market. Between free cash flow and lending arrangements, the company is well funded. The so-called TEN project is more than half-way completed, and the firm hopes to be able to begin production in July or August. Tullow is at the mercy of the oil market, and while the energy markets outlook stays bleak so does Tullow Oil’s. 

Low valuation 

  12-month trailing price earnings 12-month forward price earnings Price/book value Dividend yield
Tullow Oil n/a n/a 0.59 0%
BP n/a 15.05 0.95 7.98%
Royal Dutch Shell B 85.96 12.72 0.85 8.21%
Cairn Energy n/a n/a 0.47 0%
FTSE 100 27.31 15.42 1.72

4.37%

 

Tullow Oil is very much undervalued when you look at the price to book value ratio, it is even relatively cheap when compared with the industry leaders – BP and Royal Dutch Shell. The low valuation is also a product of the low expectations traders hold for the company. Tullow Oil’s lack of dividend will put off some investors, and conversely income seekers will turn to the titans of the sector for cash pay-outs.

Earnings vs expectations 
Out of the past eight full-year results announcements from Tullow Oil, the company beat revenue estimates 50% of the time, and exceeded the earnings per share (EPS) estimate 75% of the time. Volatility can be anticipated on the day of the figures being released, and we have seen on average a 4.23% move in the share price, and only 37.5% of them have been positive. 

Banks are bullish

  Buy ratings Hold ratings Sell ratings
Tullow Oil 18 8 3
BP 12 17 3
Royal Dutch Shell B 11 7 1
Carin Energy 12 9 2

 

Equity analysts are very bullish on Tullow Oil, and it has the highest percentage (62%) of buy ratings associated with it, but it also has the highest percentage (10.3%) of sell ratings from the above groups. Investment banks have a target price of 247p for Tullow Oil, which is 43% above the current price.

Tullow Oil’s share price has lost 54% over the past year, but it has pushed higher since 20 January, and the move corresponded with the jump in the price of oil. Further gains will run into resistance at 181p, and should we see an hourly close above this level it would be a bullish signal, and 217p is the next major resistance level in sight. 156p (which coincides with the 50-hour simple moving average) is acting as support for now, but if there is an hourly close under this level it would be bearish indicator, and 142p is the next major support level on the horizon. Should we seen an hourly close below 142p, the next big support level to watch will be 116p.

Tullow Oil chart

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