Analysts at RBC Capital Markets lowered their target price on exploration and production firm Tullow Oil from 90.0p to 80.0p on Monday following the group’s recent trading update.
RBC Capital Markets stated Tullow’s trading update included details of a positive end to 2021 but also came with “a cautious view” on 2022.
The Canadian bank said in-line production of 59,000 barrels per day generated post-hedge revenues of $1.3bn and as continued focus on costs and favourable working-capital movements that lead to cash flow being stronger than predicted, Tullow ended the year with net debt of around $2.1bn.
However, RBC said 2022 production guidance had been “clouded slightly” by Occidental’s recent sale of stakes in two Ghanaian fields and also noted that production was budgeted to average 55,000-61,000 barrels per day for Tullow’s yet-to-be-completed acquisition of additional small stakes in its Jubilee and TEN assets.
The analysts also noted that 2022 capex and abex guidance of $350.0m and $100.0m was ahead of their forecasts and said the increased year-on-year spending in Ghana was primarily due to investment in the Jubilee North East and South East areas.
On the other hand, RBC added that the impact of lower output from TEN had been offset slightly by a positive outlook for Tullow’s non-operated operations.
Morgan Stanley resumed coverage of British Airways and Iberia parent IAG with a €2.50 price target on Monday.
MS noted that the company’s geographical footprint and limited government support resulted in the group losing its status as a best in class stock.
“We think the easing of travel restrictions in the UK and Ireland will drive strong pent up demand, allowing IAG’s margins and cash flow to recover, easing concerns on balance sheet repair,” it said.
Analysts at Berenberg raised their target price on mining group Anglo American from 3,300.0p to 3,500.0p on Monday, stating its 2022 consensus had scope to “grind higher”.
Berenberg said Anglo American shares had outperformed year-to-date, up 10% in volatile markets, and while it feels that the diversified mining sector was looking “fairly fully valued”, mainly on the consensus view that commodity prices will ease over the coming years, the analysts also believe it is looking “increasingly likely” that a metals-intensive energy transition keeps prices higher for longer, and, in the case of certain commodities, supply/demand challenges are playing a part in price spikes.
The German bank, which reiterated its ‘buy’ rating on the stock, noted that metallurgical coal was a good example, with tight markets contributing to spot prices of around $400 per tonne – well above its more conservative $269 per tonne estimate and consensus of $250 per tonne. The same goes for other commodities, such as iron ore, rhodium, and nickel, it said.
“We, therefore, believe that while Anglo American is approaching fair value on our base-case estimates, there is scope for consensus to continue to surprise to the upside, and this, coupled with a fairly optimistic outlook for infrastructure spending, should help Anglo American shares to grind higher,” said Berenberg.
“Anglo American offers an 11% FCF yield for 2022E and we are 5% ahead of EPS consensus; marking to market at spot, our FCF yield jumps to 16% and we are 38% ahead of consensus. While we think that there is scope for moderation in prices as supply comes online, we still expect rising consensus estimates, which should be supportive for Anglo American shares.”
