Tullow Oil PLC (LSE:TLW) proposed asset sale in Gabon is “value accretive”, according to stockbroker Peel Hunt, who has repeated a ‘buy’ recommendation.
With a price target of 50p, the broker sees more than 200% upside to the current price of around 15p.
Tullow on Tuesday announced its deal to sell its Gabon subsidiary to the buyer, Gabon Oil Company, in return for $300 million (net of tax).
The divested assets equate to 10,000 barrels of daily production, and 36 million barrels of 2P Reserves.
Significantly, Tullow said that selling the business unit significantly reduces leverage, boosts its balance sheet, and helps it focus on high-margin ‘self-funded’ production that drives cash flows.
Peel Hunt analyst Sam Wahab, in a note, meanwhile, highlighted that the broker had ascribed some $250 million for Gabon in its ‘core’ valuation.
“The disposal is accretive to both equity and leverage, as well as accelerating the deleveraging process,” Wahab said.
“Historically, Tullow’s capex exposure in Gabon had been US$30-70m/annum, and the divestment should have additional G&A cost savings, while also allowing for greater attention to its core portfolio in Ghana.”
Looking ahead, Wahab reckons Tullow has three further ‘hurdles’ which, once cleared, will “unlock upside” for the London-listed shares.
One is the appointment and confirmation of a permanent chief executive, the second will be a refinancing of bonds currently due to mature in 2026, and the third will be the settlement of Tullow’s outstanding tax disputes.