The Investment Column: Tullow may be in for a good run despite the swooning share price

Thomson Intermedia; Trafficmaster
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The Independent Online

Our view: Buy

Share price: 540p ( -7.5p )

Tullow Oil took a battering after it revealed in its annual trading statement that production for this year would be a bit less than analysts were expecting.

The independent oil group's 5.1 per cent fall – although it later clawed back some of the losses – was the last thing it needed. Since the start of the year it has lost nearly 11 per cent of its value.

To a degree this is of course understandable. Not only has it suffered amid the ferocious market ructions of recent days, but underlying concerns are especially acute for Tullow.

Oil may have touched $100 a barrel earlier this year, but as anxieties of a US recession grow, the outlook for oil demand has taken a hit. An American recession is one of the few factors that economists have predicted could lead to a fall in the oil price.

Yet most market watchers seem to agree that even if the US does hit the skids, a new higher floor for oil has been established, held up by the voracious appetites of the Chinese and Indian economies.

Against that backdrop and the company's recent share price swoon, we think that now could be just the time to sink some cash into Tullow. But beware, this is a punt more on future potential than near-term earnings excitement. Earnings are expected to be largely flat this year. But Tullow's project pipeline is arguably unparalleled by any of its peers.

The company's prospects weigh heavily on its promising Jubilee field in Ghana. Depending on the outcome of the appraisal process of the field this year – the company will drill eight wells to test the extent of the deposit in the next few months – Tullow could be in for a very good run. At the moment Jubilee is estimated to hold anywhere between 170 million barrels and 1.3 billion.

Tullow has long been seen as a takeover target. If the field comes out near the top end, any number of the majors could be spurred to take the company out.

Thomson Intermedia

Our view: No rush to buy

Share price: 34p (-22.5p)

The new management team at the advertising monitoring group Thomson Intermedia has marked its arrival with a flourish – a profit warning, strategic review, and search for a new finance chief. It was a traditional kitchen-sink job, which wiped out half the value of the company.

The question for investors is whether this is now a buying opportunity or a basket case.

Thomson uses sophisticated software to examine what value companies get from their advertising. As more print advertising migrates online, the issue of where to spend the money becomes critical.

The executive duo Michael Greenless and Nick Manning are experienced advertising and media entrepreneurs. They are swiftly drawing a line under the previous regime, claiming that financial forecasts were optimistic and as a result this year's profits will fall below expectations.

There was a disappointing first-half performance from the technology and data side, which trawls through millions of ads from press, TV, radio, cinema – even leaflets pushed through doors. This will now face a major restructuring.

The consultancy division – offering advertisers advice on strategy – was stronger, and now accounts for 65 per cent of group turnover.

The plan is to beef up the operation by developing some of the close relationships which exist with clients.

Overall Thomson made a loss of £1.2m, following write-downs of development costs and despite a 5 per cent improvement to £8.4m in revenue.

The sharp fall leaves Thomson worth just over £10m. The business clearly looks undervalued.

Buying the shares is a punt on whether investors believe the new management is capable of taking it forward. But that won't happen overnight. It is still too early to rush in.


Our view: Hold

Share price: 40.25p (unch)

Trafficmaster should be in every ethical investor's portfolio. It provides satellite navigation based information on traffic jams which can help motorists to save fuel and cut down on nasty emissions.

But those looking for some excitement even in these fraught markets will probably go elsewhere. The shares have fallen 44 per cent in a year. In a trading update yesterday the company said that following a strong first half, full-year results would be in line with expectations. The shares did not move.

Trafficmaster was founded 20 years ago, and has made solid progress, but not at the rate the market seems to expect. It has successfully cuddled up to major car makers so its kit is fitted to new models, it tracks stolen vehicles for BMW, and provides journey time data for the Department of Transport.

In the US, which accounts for half its sales, it reached a deal to sell its fleet tracking equipment to the truck giant Ryder, but there are no firm figures to back up the size of the contract. In the UK it was involved in a well-publicised link with Norwich Union to offer pay-as-you-drive insurance, but there is no news on whether the contract is being renewed. So despite the undemanding rating of 9 times 2008 expected earnings, market reaction was muted. Hold for now.