News of debt reduction at Tullow is a big deal, and one analyst thinks the shares are worth considerably more than this. There’s a different trigger for buying at GSK.
Five Tullow Oil (LSE:TLW) directors have staked over £300,000 on the company’s shares after the West Africa-focused operator took an “important step” tackling its debt pile.
The insider purchases, including one worth £100,000 by chief executive Rahul Dhir, were in the week that Tullow left the FTSE 350 index after a 21% slide in valuation this year.
Despite other energy stocks feeling the impact of lower oil prices, Tullow rallied 10% during its first week back in the FTSE All-Share, as investors welcomed the show of support that followed the company purchasing $166.5 million (£131 million) of its debt.
The tender offer under a Dutch auction process covered some of the $800 million (£629.3 million) of 7% senior notes involved in Tullow’s 2021 refinancing. The borrowings are due for repayment by March 2025, with a further $1.6 billion (£1.3 billion) of 10.25% senior notes having a 2026 maturity.
Tullow said it held a range of options to deal with the remainder of the 2025 notes, with the start-up of the Jubilee South East development in Ghana, meaning the company should be materially free cash flow positive in the second half of the year.
Chief financial officer Richard Miller said: “This transaction, which demonstrates our confidence in the business, is an important step in addressing our debt maturities.”
Net debt stood at $1.86 billion (£1.5 billion) at the end of 2022, compared with 2021’s $2.1 billion (£1.65 billion) as gearing reduced to 1.3 times three years ahead of plan. It had been at three times before the refinancing and 2.2 times in 2021.
Dhir told shareholders at last month’s AGM that gearing of 1x or below would give Tullow the flexibility to pursue “value accretive opportunities or consider future shareholder returns”.
He pointed out that oil prices of $80 a barrel would enable Tullow to deliver $800–$900 million of free cash flow between 2023 and 2025, having generated $267 million on the back of last year’s 6% rise in production to 61,100 barrels a day.
Tullow’s flagship projects include Jubilee in Ghana and its Simba field in Gabon, as well as Espoir in Côte d'Ivoire. Current guidance is for daily production of between 58,000 and 64,000 barrels, with the performance weighted towards the second half.
However, since Dhir’s AGM update the price of Brent crude has fallen back to around $73.50 on fears that higher interest rates will curb global demand.
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The shares, which were listed in the FTSE 100 index between 2007 and 2015, were as low as 22p in May, but the debt tender offer meant they rallied 7.5% last Monday and finished the week at 28.1p after the disclosure of the insider purchases.
The most recent investment was made on Friday by chair Phuthuma Nhleko as he spent £39,500 on shares at a price of 27.76p. Other buyers included new finance boss Miller and non-executive director Roald Goethe, with the latter spending £150,000.
Barclays Capital last week raised its price target by 8% to 53p after upping 2023-25 estimates to reflect the reduction in net debt and lower future interest payments on the 2025 notes.
It also pointed out that Tullow’s 2023 income statement will benefit from a $66.5 million (£52.3 million) gain on the purchase of the notes at about 60% of par value.
In May, Peel Hunt analysts had a price target of 80p after forecasting a “step change” in production cash flows in the second half of this year.
Last summer, Tullow’s plans for “very significant” synergies and a material reduction in debt service costs were scuppered when a merger deal with former Cairn Energy business Capricorn Energy fell through.
Drug shares receive legal boost
Strong demand for GSK (LSE:GSK) shares on Friday included from the drug maker’s finance boss and chair after they made purchases totalling over £400,000.
The investments followed GSK’s disclosure that it had settled a lawsuit relating to allegations that discontinued heartburn drug Zantac caused cancer.
GSK said the agreement ahead of the 24 July trial date in California reflected its desire to avoid the distraction of protracted litigation. It said it did not admit any liability and that it would vigorously defend itself in any other Zantac cases.
The litigation threat has hung over the shares since August, with GSK’s former consumer healthcare arm Haleon, Sanofi and Pfizer also impacted.
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GSK shares rose 5% on Friday as the best performing stock in the FTSE 100 index, closing at 1,425p compared with more than 1,700p last July.
Julie Brown, who was Burberry chief operating and financial officer prior to joining GSK in April, made her first purchase of the company’s shares with dealings worth £321,554 at a price of 1,429.1p. Chair Jonathan Symonds spent £86,387 at 1,439.8p
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