Investment Column: Exploration success fuels Tullow Oil

Lookers; Melrose


Our view: Buy

Share price: 1,413p (-47p)

Ignore the market, which sucked 3.2 per cent out of Tullow Oil's value yesterday largely because of election-related delays to the company's long-running tax dispute in Uganda.

Leaving the froth aside, the annual results for 2010 published by the FTSE 100-listed oil prospector showed strong progress. In a year described by chief executive Aidan Heavey as "transformational" with the achievement of first oil from the Jubilee field in Ghana, the group's pre-tax profits rose by a whopping three and half times to $152m, on revenues up by a fifth to more than $1bn.

In the short term, the steadily rising oil price – both before and since the political upheavals in the Middle East – is clearly a point in Tullow's favour. But there is more to recommend the stock than simple macroeconomic fluctuations. Even without the boost in the price, Tullow's finances are set for a major lift this year, as production from Jubilee steadily ramps up.

The company's string of exploration and appraisal successes – with an 83 per cent hit rate last year and seven successes so far in 2011, including interesting discoveries off the coast of Ghana and Sierra Leone – also bode well for the year ahead. "With a diverse 40-well exploration and appraisal campaign planned for 2011, we look forward to another year of significant progress," Mr Heavey said yesterday.

There is even room for some optimism on Uganda. Local sources this week suggested that the tax issue may be within days of resolution, paving the way for Tullow to farm down its stakes as planned, giving the group's balance sheet a significant boost.

Notwithstanding yesterday's wobble, the shares are up by more than a fifth since early December. And as Tony Shepherd, an analyst at Charles Stanley, noted yesterday: "There are plenty of drilling announcements to keep investors excited. If further exploration success continues, it could drive the share price closer to its £18 net asset per share value," Mr Shepherd concluded. We agree.

Lookers

Our view: Buy

Share price: 63p (-1p)

Lookers, the company behind more than a hundred franchise car dealerships, boasted a record trading performance in 2010, driven by a barnstorming performance from its automotive parts business.

Its full-year pre-tax profits rose by 19 per cent to £33.6m, on revenues up 7.7 per cent to £1.9bn, which was ahead of City expectations. While the rise in profits followed similarly upbeat results from Vertu Motors, Pendragon and Inchcape over the past fortnight, unlike some of its rivals Lookers relies solely on dealerships in the UK and Republic of Ireland. This makes its results particularly impressive.

Certainly, Lookers' parts division motored ahead last year with pre-tax profits up 11 per cent to £12.3m. The division delivered growth across all its major customer groups and further benefited from the new product lines introduced in previous years. While Lookers' much bigger motor division saw a 4.8 per cent fall in total new car sales, the unit grew pre-tax profits by 12 per cent to £28m helped by cost cutting measures and by a scaling back of its low-margin fleet business.

As if that was not enough, Lookers only trades on a forward earnings multiple of 9.7 and it yesterday said its progressive dividend policy, which it had followed until the "difficult trading" in 2008, has now been restored. It will pay a final dividend of 1.2p per share. While there are far better yields to be had elsewhere, we think Lookers' shares are undervalued.

Melrose

Our view: Buy

Share price: 311.6p (-0.4 p)

Its strategy of buying struggling engineering businesses, turning them around and then selling them off has worked wonders for Melrose, with its share price increasing more than fourfold in two years Although its final results last night did not produce quite the boost of last August's half yearly report, the figures still looked impressive, showing a rise of nearly 45 per cent in its underlying pre-tax profit.

The focus was Dynacast, with Melrose saying it is currently considering selling the die-cast metal parts manufacturer, and shareholders should see a large cash return if it succeeds.

Melrose has certainly had a strong run, yet it looks fairly cheap. Further updates on disposals or acquisitions should drive the share price, so it could well be worth buying in advance.

News
i100
News
people Emma Watson addresses celebrity nude photo leak
News
The Prostate Cancer Foundation is returning all donations made by Redditors 'in honour' of Jennifer Lawrence and her naked photos
news

Website users raised funds after Jennifer Lawrence nude photo leak

News
Katie Hopkins appearing on 'This Morning' after she purposefully put on 4 stone.
peopleKatie Hopkins breaks down in tears over weight gain challenge
PROMOTED VIDEO
News
news

The Tardis-style house measures in at just 83 inches wide

News
advertising
Arts and Entertainment
Robert De Niro, Martin Scorsese and DiCaprio, at an awards show in 2010
filmsDe Niro, DiCaprio and Pitt to star
News
i100
Life and Style
Red or dead: An actor portrays Hungarian countess Elizabeth Báthory, rumoured to have bathed in blood to keep youthful
health
News
In this photo illustration a school student eats a hamburger as part of his lunch which was brought from a fast food shop near his school, on October 5, 2005 in London, England. The British government has announced plans to remove junk food from school lunches. From September 2006, food that is high in fat, sugar or salt will be banned from meals and removed from vending machines in schools across England. The move comes in response to a campaign by celebrity TV chef Jamie Oliver to improve school meals.
science
Sport
England captain Wayne Rooney during training
FOOTBALLNew captain vows side will deliver against Norway for small crowd
News
peopleJustin Bieber charged with assault and dangerous driving after crashing quad bike into a minivan
News
ebooksAn unforgettable anthology of contemporary reportage
News
peopleHis band Survivor was due to resume touring this month
News
people'It can last and it's terrifying'
Life and Style
fashionModel of the moment shoots for first time with catwalk veteran
Sport
Radamel Falcao poses with his United shirt
FOOTBALLRadamel Falcao's journey from teenage debutant in Colombia to Manchester United's star signing
Life and Style
fashionAngelina Jolie's wedding dressed revealed
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Front-Office Developer (C#, .NET, Java,Artificial Intelligence)

£30000 - £45000 per annum + benefits+bonus+package: Harrington Starr: Front-Of...

C++ Quant Developer

£700 per day: Harrington Starr: Quantitative Developer C++, Python, STL, R, PD...

Java/Calypso Developer

£700 per day: Harrington Starr: Java/Calypso Developer Java, Calypso, J2EE, J...

SQL Developer

£500 per day: Harrington Starr: SQL Developer SQL, C#, Stored Procedures, MDX...

Day In a Page

Chief inspector of GPs: ‘Most doctors don’t really know what bad practice can be like for patients’

Steve Field: ‘Most doctors don’t really know what bad practice can be like for patients’

The man charged with inspecting doctors explains why he may not be welcome in every surgery
Stolen youth: Younger blood can reverse many of the effects of ageing

Stolen youth

Younger blood can reverse many of the effects of ageing
Bob Willoughby: Hollywood's first behind the scenes photographer

Bob Willoughby: The reel deal

He was the photographer who brought documentary photojournalism to Hollywood, changing the way film stars would be portrayed for ever
Hollywood heavyweights produce world's most expensive corporate video - for Macau casino

Hollywood heavyweights produce world's most expensive corporate video - for Macau casino

Scorsese in the director's chair with De Niro, DiCaprio and Pitt to star
Angelina Jolie's wedding dress: made by Versace, designed by her children

Made by Versace, designed by her children

Angelina Jolie's wedding dressed revealed
Anyone for pulled chicken?

Pulling chicks

Pulled pork has gone from being a US barbecue secret to a regular on supermarket shelves. Now KFC is trying to tempt us with a chicken version
9 best steam generator irons

9 best steam generator irons

To get through your ironing as swiftly as possible, invest in one of these efficient gadgets
England v Norway: Wayne Rooney admits England must ‘put on a show’ to regain faith

Rooney admits England must ‘put on a show’ to regain faith

New captain vows side will deliver for small Wembley crowd
‘We knew he was something special:’ Radamel Falcao's journey from teenage debutant to Manchester United's star signing

‘We knew he was something special’

Radamel Falcao's journey from teenage debutant to Manchester United's star signing
'I’ll tell you what I would not serve - lamb and potatoes': US ambassador hits out at stodgy British food served at diplomatic dinners

'I’ll tell you what I would not serve - lamb and potatoes'

US ambassador hits out at stodgy British food
Radio Times female powerlist: A 'revolution' in TV gender roles

A 'revolution' in TV gender roles

Inside the Radio Times female powerlist
Endgame: James Frey's literary treasure hunt

James Frey's literary treasure hunt

Riddling trilogy could net you $3m
Fitbit: Because the tingle feels so good

Fitbit: Because the tingle feels so good

What David Sedaris learnt about the world from his fitness tracker
Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Second-holiest site in Islam attracts millions of pilgrims each year
Alexander Fury: The designer names to look for at fashion week this season

The big names to look for this fashion week

This week, designers begin to show their spring 2015 collections in New York