Broker snap: Tullow still a 'sell' despite strong H1 update

3rd Jul 2013 11:05

While the market reacted positively to Tullow Oil's first-half trading update on Wednesday morning, Investec has chosen to reiterate its 'sell' rating, saying that investors should be wary about development funding.Analyst Brian Gallagher admitted that the operational update was "strong" with results from the Etuko and Sabisa wells (Kenya and Ethiopia, respectively) coming in better than expected.Resource upgrades from Ngamia and Twiga in Kenya were also "encouraging" though estimates still remain below Tullow's commercial threshold guidance, he said.Gallagher said: "Our view is that the commercial threshold will ultimately be breached in the Lockichar [Basin, Kenya]. However making this assumption brings the question of development funding forward. "A good problem to have, yes, but Tullow is already selling assets and seeking farmdowns to fund its existing projects in Ugandan and Ghana. Therefore investors should be aware that, even at its size, Tullow is not immune to the funding discount the rest of its peer group experiences."He said that the rest of the statement was "underwhelming" with net debt rising (from $1.6bn at the start of May to $1.7bn by the end of June) and the upper end of production guidance being trimmed.The 930p target price for the stock has been left unchanged.The share price was up 2.61% at 1,060p by 11:15 on Wednesday.