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City downgrade actually shows silver lining for Tullow Oil as share sell-off is said to be “overdone”

A reduced target price of 211p still suggests some 55% upside to the oiler's current share price.

Tullow Oil plc - City downgrade actually shows silver lining for Tullow Oil as share sell-off is said to be “overdone”
Peel Hunt is sticking with an 'add' recommendation for Tullow shares

Tullow Oil plc (LON:TLW) shares have beaten down in recent weeks triggered by unexpected findings when analysing its two high profile new discoveries offshore Guyana, but, somewhat counterintuitively, commentary attached to a City downgrade today paints a silver-lining for investors.

Stockbroker Peel Hunt in a note described the revelation that Tullow’s new Guyana discovery comprises heavy crude as “a major blow, but not a knockout”.

At the same time, the broker noted that Tullow’s separate but simultaneous downgrade of production guidance in Ghana had “added fuel to the fire”.

READ: Tullow Oil will miss production guidance for 2019

Nonetheless, Peel Hunt reckons the share sell-off – that saw the share fall 34% since mid-November - has been “overdone”.

At the same time the broker does reduce its target price for Tullow Oil to 211p per share, suggesting some 55% upside to the current price of 135.75p.

Peel Hunt, meanwhile, retains an ‘add’ recommendation for the oiler.

“Heavy oil is a major blow, but we think the share price reaction is overdone: stripping out Guyana gives a 211p/share Risked NAV,” analyst Matt Cooper said in a note.

“While heavy oil increases risking, for larger discoveries such as Jethro, we think the high quality/temperature/pressure reservoir means a good chance of development.”

Quick facts: Tullow Oil PLC

Price: 30.39 GBX

LSE:TLW
Market: LSE
Market Cap: £428.6 m
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