It came as a surprise, but Monday’s US$790mln rights issue from Tullow Oil plc (LON:TLW) has given the stock a much needed kick in the right direction.
This, at least, is the opinion of Deutsche Bank, which earlier upgraded its stance on the stock to ‘buy’ with a valuation of 270p (current price 198p).
“If you have been sitting on the fence we think the current share price offers an attractive entry level to invest in a material and recapitalised Bellwether of the E&P sector,” was the straightforward message.
The oil and gas team of the German bank pointed out the fully underwritten cash call significantly strengthens the balance sheet and means Tullow is now not in the thrall of its lenders.
There is a double whammy if both production and the oil price increase, it added.
“Tullow offers geared commodity exposure for investors with a constructive outlook on the oil price, as well as long-term optionality and growth in a deflationary international E&P cost environment (unlike the US unconventional space),” Deutsche said in a note to clients.
“In our view, the rights issue allows Tullow to wrestle back control of its free cash flow from the banks and let its equity story take centre stage.”
Of the 19 analysts logged as following Tullow by the Brokerforecasts site, 12 are in the ‘buy’ camp. There are only four with ‘sell’ recommendations, while the remainder are ‘neutral’ on the stock.
The consensus price target, which was 333p at the start of the year, is currently bobbing around the 200p mark.