What a week it has been for Tullow Oil. Last Wednesday investors were popping the champagne corks as the shares rocketed by 24 per cent after the group announced a major new find off the Ghanaian coast.
The stock reached a peak of 943.5p at the height of the hullabaloo, and even though the shares are off a bit since then, investors thinking they may have missed the boat could yet get a chance to join the party. Analysts at Evolution say that there is more good news to come, arguing that the shares have a fair value of 1129p because of "new prospects identified in Ghana and the remainder of the group's exploration programme over the next 18 months". This, they say, represents the risked fair value. On "unrisked potential", shares could reach £19, and while Evolution accepts that this "may seem far-fetched" they point out that the shares were trading at just 554p last September.
Investors do need to be careful not to be swept away on the good news coming from Tullow. After all, this is a high-risk sector, as Citigroup points out. There is a danger of being caught on the bandwagon, say analysts at Goodbody, who reckon that the "current valuation is substantially up with events," even though Tullow could, and some say is likely, to trumpet further finds.
Most observers think there is room left and the stock is not yet fully valued. Watchers at RBC still have the group as its top pick in the sector, despite the gains already made.
With a plethora of announcements to come during the rest of the year, investors can be fairly confident to hear some good news. If it is as good as last week's, today's buyers will be quids in. Buy.
HDR Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
