Tullett Prebon (LSE: TLPR), TalkTalk Telecom Group (LSE: TALK) and Faroe Petroleum (LSE: FPM) have all fallen steadily over the last few months.
However, Friday’s updates from the firms suggest that things could soon start to improve.
Tullett Prebon
Shareholders in interdealer broker Tullett Prebon were given a roller-coaster ride on Friday, when the firm’s shares fell by as much as 12% after a profit warning, only to then rocket higher, following news of a possible takeover deal.
The profit warning was the result of an ongoing decline in trading volumes for financial assets such as bonds and interest rate swaps. Tullett said that, excluding revenue from its recently acquired oil business, revenue for the year to date was down by 3% so far this year.
However, shortly after 10am, Tullett issued a second statement, announcing that it was in talks to acquire fellow broker ICAP‘s global broking business. Tullett shares shot higher, and by early afternoon were trading 10% above their opening price, at 360p.
ICAP’s broking business generated £808m of revenue last year, more than Tullett’s total revenue of £703.5m. To fund the deal, Tullett would issue new shares totalling “more than 100%” of its existing share capital to ICAP shareholders.
Combining two shrinking businesses seems logical to me. However, it’s a developing story and we don’t yet know how much of a premium Tullett is proposing to pay to acquire ICAP’s business. For now, I’d leave Tullett on hold.
TalkTalk Telecom
TalkTalk provided an update on the data loss from its recent cyber attack this morning, saying that “the scale of the attack was much more limited than initially suspected“, and that only 156,959 customers (4% of its customer base) had their personal details accessed. Of these, 15,656 bank account numbers and sort codes were accessed. The firm says that, on its own, none of the financial information accessed can lead to a financial loss.
It’s relatively good news for TalkTalk, whose shares have risen 4% on the day so far, having fallen by 28% over the last month.
At 229p, TalkTalk now trades on a 2015/2016 forecast P/E of 16.4, falling to 10 in 2016/17. The prospective dividend yield is now 7%. However, I think there is a risk that both earnings forecasts and the dividend will be cut.
In July, TalkTalk shares fell 9% in one day, after the firm said that profits would be more heavily weighted towards the second half than usual. That’s often an advance warning that profits for the full year will miss expectations.
TalkTalk is very dependent on a strong second-half performance, and the cyber attack won’t have helped. I’d wait a little longer before considering a buy.
Faroe Petroleum
Although the small-cap oil and gas sector is a risky place to invest at the moment, Faroe is one of the strongest players in this area. The firm has a successful hedging strategy, attractive producing assets, and net cash of £81m.
And this morning, Faroe said that it had completed the previously announced acquisition of Roc Oil (GB Holdings) Limited, giving it minority interests in the Blane and Enoch Units in the UK North Sea.
Faroe shares currently trade at a post-2009 low of 63p. Yet the firm’s production has averaged 10,350 barrels of oil equivalent per day (boepd) so far this year, ahead of expectations.
Faroe also has positive cash flow, thanks to hedging deals, and has reduced its operating costs to a record low of $22/boe. If oil prices start to make a modest recovery in 2016, as seems likely, Faroe could prove a profitable investment at current levels.
