Tullow Oil PLC           

Tullow Oil PLC (LON: TLW) is listed on the FTSE AIM All-Share index. It is a well-established, recognised oil and gas company focused on Africa and South America.

Investment Rationale – Watch at GBX 54.10

• Production Guidance: The Company had anticipated FY22 group working interest oil production ranging from 55 to 61 kboepd (thousand barrels of oil equivalent per day).
• Expected Cash Flow: As per the Company's FY22 outlook, the underlying operating cash flow is estimated to be USD 750 million at USD 75 per barrel, with a free cash flow of USD 100 million.
• Overvalued Multiples: On a forward 12-month basis – EV/Sales, EV/EBITDA, and Price/Book valuation multiples are overvalued against the energy sector.
• Lower Margins: In H1FY21, TLW’s EBITDA, operating and net margins were lower than industry margins, reflecting weaker profitability.
• Bearish Technical Indicators: The stock price is hovering around the upper Bollinger band, indicating a bearish price momentum. Moreover, the 14-days RSI stood at ~56.54.

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)

Conclusion

Please note, markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Based on the production guidance, lower margins as compared to the industry, and bearish technical indicators, we have given a “WATCH” recommendation on Tullow Oil PLC at the current market price of GBX 54.10 (as of 01 March 2022 at 09:19 AM GMT).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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