Perhaps a perfect example of this is Rolls-Royce. After being one of the worst-performing stocks in the FTSE 100, it quickly turned into the best performer. And over the course of three years, smart long-term investors who saw the hidden potential have been handsomely rewarded with quadruple-digit gains!

Skip ahead to 2026, and Tullow Oil‘s (LSE:TLW) now among the worst-performing stocks in the UK, falling by a painful 70% over the last 12 months.

So has a Rolls-Royce-style buying opportunity emerged?

What happened to Tullow Oil?

As a quick introduction, Tullow Oil is an independent oil & gas exploration and production enterprise operating primarily out of Ghana with some exploration and decommissioning activities across Argentina and the UK respectively.

While oil & gas prices have suffered last year, the sector as a whole has proven to be fairly resilient, offsetting lower prices with higher production volumes. But for Tullow Oil, the story’s been quite different.

With its flagship oil fields in Ghana suffering reservoir pressure dips, production has struggled to keep up with internal targets. In its latest half-year results, total production volumes fell sharply from 63.7 thousand barrels of oil equivalents per day (kboepd) to just 50 thousand. And volumes have continued to decline since.

To make things worse, the company’s facing a bit of a debt crisis. Management has successfully been lowering its outstanding loans over the last five years. But the firm faces $1.3bn in bond maturities in four months from now.

Management is actively engaging with creditors to restructure or refinance. But that could translate into a debt-for-equity agreement. And if that happens, existing shareholders could get wiped out. With that in mind, it isn’t surprising the stock’s seemingly in free fall.

Is there any hope of a turnaround?

Despite the bleak outlook for this enterprise, there’s some room for cautious optimism. Wiping out equity holders may not be in the interest of debt holders since it destroys the company’s recovery value.

As such, creditors may entertain a maturity extension to give Tullow Oil some breathing space while it seeks to get production back on track.

New wells are scheduled to come online in the second half of 2026 and early 2027. And if oil prices start to climb again, the firm could further expand its financial flexibility to continue tackling its problematic debt and restore investor trust.

Is this likely to happen? Sadly, the current data suggests not.

The latest forecasts point towards further deterioration in oil & gas prices over the next two years. Ramping up production will ease some of the burden. But the company’s ideal production targets still fall firmly short of what’s required at $60 per barrel.

With that in mind, Tullow Oil definitely doesn’t look to me like a top stock to consider buying. But luckily for investors seeking exposure to the oil & gas industry, there are plenty of other undervalued UK stocks in this sector to explore.

The post Down 70%, could this be one of the best bargain stocks to buy in 2026? appeared first on The Motley Fool UK.

Here are three UK-listed shares currently sitting near their historic lows. Are they worth a closer look?

Tullow Oil

Tullow Oil (LSE: TLW) has had a rough few years, but it’s not out of the game yet. The Africa-focused driller recently appointed a new chief executive, signalling a fresh start for the business. It also strengthened its balance sheet by $120m through the sale of its Kenyan assets and secured an extended licence in Ghana to 2040 — a key long-term boost.

However, production from its flagship Jubilee field slipped 32.8% to 11m barrels this year, largely due to maintenance shutdowns between March and April. That’s been reflected in its share price, which trades at just 10.2p – not far above its 7.16p low.

On paper, Tullow looks astonishingly cheap, with a forward price-to-earnings (P/E) ratio of only 2.42. But the low valuation comes with good reason. After a profitable 2024, it’s slipped back into the red, with just £141m in cash compared with £1.81bn in debt. Forecasts suggest little improvement in revenue or earnings for several years.

While I think risk-tolerant investors could consider it for a speculative turnaround play, its heavy debt and inconsistent profitability could still make it a tricky stock to hold long term.

Mobico Group

Mobico Group (LSE: MCG), the owner of National Express, is another name trading close to rock bottom. The transport operator’s shares have fallen around 90% in the past decade and currently sit at 27.82p — just above their 24.3p low.

Despite reporting £3bn in revenue, Mobico’s earnings collapsed by 610% year on year, resulting in an £824m loss. Its £3bn in assets and £1.48bn in debt highlight a stretched balance sheet.

Still, the company recently won a promising eight-year, €500m transport contract in Saudi Arabia.

The forward P/E ratio of 3.9 looks tempting, but unless profitability returns soon, that discount may not matter. Persistent losses, high debt and inflation-linked cost pressures make this one a value share that’s probably a bit risky to consider right now.

Synthomer

Synthomer (LSE: SYNT), a chemicals producer, might be the most interesting of the three. Trading at 59.6p, its barely above its 56.6p low having recently lost £72.6m despite generating £1.96bn in revenue.

Surprisingly, its balance sheet remains relatively sound, with assets outweighing liabilities and debt comfortably covered by equity.

Out of seven analysts tracking the company, the average 12-month price target is 111p — an 86% premium to today’s price. Earnings are forecast to rebound next year to 6p per share, which could signal a turnaround if demand for its speciality polymers picks up.

The main risk is that recovery may take longer than expected, particularly if industrial demand stays weak in Europe.

Still, I think it’s one of the more promising value shares to consider on the FTSE 250 right now.

The bottom line?

Value investing often requires patience and strong nerves. While these stocks are all trading near their lows, only a clear path to profitability will determine whether they become genuine bargains — or stay stuck in the bargain bin.

The post Are these 3 beaten-down British value shares worth a second look? appeared first on The Motley Fool UK.

A different business model

Tullow Oil’s business model is distinct due to its focus on frontier hydrocarbon economies, largely in Africa. The company looked to leverage local skills and invest in their development, with hundreds of Ghanaian workers going on rotation to its Chiswick offices to gain more experience. The logic was that using local employees and suppliers was cheaper and gave back to the economy. I actually wrote my PhD on the topic and studied the company’s operations in Uganda.

Tullow had hoped to position itself as a nimble operator with a unique growth strategy tailored to emerging markets. However, things haven’t exactly gone to plan. Operating in frontier economies can be challenging, and taking Uganda as an example, progress toward first oil simply took too long. Uganda is expecting first oil this year, some 20 years after the discovery of commercial quantities of crude oil in the Albertine Graben basin. Tullow has since exited the market.

What’s happening now?

Tullow Oil made progress in 2024. The company returned to profitability with a $55m profit after tax, reversing a $110m loss in 2023. This turnaround was driven by strategic delivery, production optimisation, and debt reduction efforts. Revenue slightly declined to $1.54bn from $1.63bn, but adjusted EBITDAX remained stable at $1.15bn. Net debt was reduced to $1.45bn, lowering gearing to 1.3 times EBITDAX, while free cash flow reached $156m.

Operationally, Tullow optimised production at its Jubilee and TEN fields in Ghana, achieving 97% FPSO uptime — the time the FPSO was operational — and bringing five new wells onstream ahead of schedule and under budget. This represented a saving $88m. The company also resolved a $320m tax arbitration in Ghana and extended its revolving credit facility to mid-2025.

Clearly, lots of positives as the firm looks to bring its balance sheet under control and rationalise its operations. Looking ahead, Tullow plans to sell its Gabon assets for $300m and expects 2025 production to average 50,000–55,000 barrels per day.

A slave to global markets

I’m not perfectly sure what Tullow’s breakeven point is in 2025. However, estimates I’ve found online put it around $45 per barrel. Regardless of the exact figure, we can’t ignore the general weakness in oil prices at the moment. President Trump’s trade policies have put downward pressure on oil, and this, if sustained, will likely feed through to earnings later in the year. This is makes me a little concerned when we consider Tullow’s huge net debt position.

Personally, I think there’s too much risk here. Trump has vowed to keep oil prices low throughout his presidency. This could hurt indebted producers like Tullow more than others. That’s why I’m not buying.

The post Down 61%, is the Tullow Oil share price a potential bargain for contrarian investors? appeared first on The Motley Fool UK.

I think a good number could come out well ahead in terms of price growth plus dividends, and I want to examine a few of them here.

Mid-cap growth?

First up is easyJet (LSE:EZJ). I’ve always steered clear of airlines due to their risks. They’re hostage to things they just can’t control, especially fuel prices. Oh, and global pandemics.

Oil is around $75 per barrel, and it could rise in the short term. But I think there’s a high chance of cheaper oil in the future.

Even after a bit of a recovery since November, we’re still looking at a forecast price-to-earnings (P/E) ratio of 8.7, dropping to 7.2 by 2026.

Now, that’s very uncertain. And I must stress that this is a risky sector. But easyJet shares look too cheap to me, and I see a good chance of growth by the end of 2024.

We should have a Q1 trading update on 24 January, and I’ll keep an eye out for that.

Interest rate cuts?

I’m turning to housebuilder Persimmon (LSE: PSN) next, as a FTSE 250 stock that has been hit hard by high interest rates.

A forward P/E of around 17 to 18 doesn’t look super cheap. But forecasts are often out of date compared to real world events, and these will have been made with high mortgage costs in mind. But those costs are already coming down, with Barclays and Santander cutting theirs as competition heats up.

The lastest economic outlook also suggests inflation could be down under 2% by April or May. So early Bank of England rate cuts look more and more likely.

I’d like to see how broker forecasts change once rates come down. Based on 2019 earnings levels, we could see the P/E dropping under seven.

Guessing at long-term earnings is the biggest risk right now, I think. And we could see more volatility until earnings start to grow. But dividend prospects look good too.

Oily growth?

Tullow Oil (LSE: TLW) is one of the top traded stocks in 2024 so far. The share price is still in the dumps, though, and that leaves the stock on a super low P/E.

In fact, forecasts put the ratio down as low as two, and dipping even further in the next couple of years. So why isn’t everyone snapping it up?

Well, Tullow shares have a hugely voltile history.

The big problem is debt. At the H1 stage, Tullow estimated year-end net debt at around $1.7bn. And that’s a company with a market cap of only £590m.

A November update looked solid, with the CEO talking of “c.$800 million of free cash flow between 2023 and 2025“. Still only half the net debt, though. And what if oil prices drop?

I see a good chance of a strong share price hike during the year. But I don’t like the longer-term risks.

The post Can these hot FTSE 250 stocks smash the market in 2024? appeared first on The Motley Fool UK.

Well, I believe people often overlook one significant risk when looking for value opportunities.

How do I know that if a company’s share price is low, it doesn’t deserve that price?

There are specific elements of its financial statements that I need to look at. Then I also need to put the company’s financial performance in context, examining its real operational challenges.

Looking at both elements in unison gives me a balanced view of whether I’m buying something genuinely ‘on sale ‘or something that could be worthless.

If something seems worthless after digging into the details, in investment language, it’s known as a ‘value trap.’

Why the fall?

I’m an investor who focuses on operations and financial statements, not on share price movements. It means I’m someone who cares about whether a company is a good business or not, with prospects for growth

Technical analysis including studying price charts, is something I don’t do much of.

I think a firm’s business results are more reliable indicators of where a share price will go over the long term. So, here are the three main reasons that I see for the price fall.

The first is that Tullow Oil tried to expand unsuccessfully and held a lot of debt doing so. Unfortunately, it wrote off $1.2bn in debt, a CEO departed in 2019, and the company missed production targets.

The second is that the pandemic seriously hit the company. Reduced demand caused the stock to decline, and this was all in the middle of a $3bn debt crisis.

Third, the company faced lobbying, bribery and tax evasion accusations in the early 2010s. It also faced a weak oil market from 2014 to 2020.

That’s a lot to deal with, not to mention the ongoing shift towards renewable energy that’s currently under way.

Can it turn around?

While I think the above evidence signals a possible value trap, there are some core reasons why I think there could be some good news ahead.  

The company is aiming for $800m in free cash flow from 2023 until 2025, stressing efficiency as a driving force behind this. Free cash flow is the cash a company has left behind after operating and other business expenses.

Admittedly, the first half of 2023 saw $1.9bn in net debt for the company and $142m in negative cash flow! But it generated $777m in revenue and $70m in net profit, which I think is promising.

On a further positive note the company is aiming for 58,000 to 60,000 barrels produced per day and $100m in free cash flow for the full year 2023.

Will I buy?

Investing in the oil business requires understanding a lot of complexity. I don’t think my short introduction fully equips me with the knowledge needed for me to invest, and it has also deterred further research into the company for me because of the immediate red flags.

That’s particularly the case given that I’m embracing changes like electric cars, solar power and the like, I think in the long term, oil will have less of a place.

The post Is the Tullow Oil share price a value trap? appeared first on The Motley Fool UK.

So, with the stock so far below where it used to be and recent momentum looking positive, should I fill my boots?

Ongoing business strength

The business continues to perform well.

Revenues in the first half slid 10% compared to the same period last year. But that was down to lower oil prices, as volumes actually increased slightly. Volatile oil prices remain as a risk (but also an opportunity) for both revenues and profits.

Indeed, I think the recent rise in the Tullow Oil share price has been largely driven by strong oil prices and the prospect of further consolidation in the sector following Exxon’s mammoth takeover of Pioneer.

The full-year outlook shared at the interim point seemed decent enough to me in most respects. The key concern I had when reading it was net debt of $1.7bn. That is around £1.4bn, roughly three times the company’s current market capitalisation.

At that time, Tullow said it was “progressing a range of options to address debt maturities and position the business for a successful refinancing”. Yesterday (13 November), it announced that it has secured a $400m five-year borrowing facility.

Concerns about debt levels

That takes the heat off the company for now when it comes to maintaining liquidity on its balance sheet.

It does not solve the underlying debt problem, though. To illustrate why that has helped drag down the share price, first half profits after tax from continuing activities were $70m. But that was after it had paid net financing costs of $135m.

In other words, (presuming an equivalent tax treatment) profits after tax would have almost tripled if the company was not spending so much on financing its activities.

What might lie in store for the valuation?

If the oil prices moves down, I think the share price could soon follow. But with some analysts predicting record oil prices on the horizon, that could be good for the company.

To get back to anything like its historic highs, though, I think the balance sheet needs to be dramatically cleaned up. Higher oil prices could help that if the company puts the proceeds into paying down debts. At a time of high interest rates, having the debt pile it does is a millstone for Tullow’s finances.

But although a higher oil price could propel Tullow Oil shares higher, the debt situation alone puts me off adding the company to my investment portfolio.

The post Up 36% in six months, can the Tullow Oil share price keep on going? appeared first on The Motley Fool UK.

Since the dark days of 2020, shares in BP and Shell have come back strongly. But Tullow Oil shares are still down in the dumps. Are they a no-brainer buy now?

Oil prices

The oil price slumped in 2020, so it was no shock that oil and gas stocks fell heavily. BP chose the time to launch its net zero thing, and that spooked the markets a bit too.

But the two FTSE 100 oil giants are now back to strength, while Tullow is down around 85% since September 2019.

Things were going wrong at Tullow even before Covid. But the firm has been through tough times in the past, and it’s held on.

I’ve bought and sold Tullow Oil shares before. And today’s 30p price makes me think about getting in again for a rebound. If there is one, of course.

Reasons to buy

Oil prices look firm right now, with Brent Crude at the $80 mark. And that’s a nice level for Tullow.

At the moment, the US has big stockpiles of the black stuff, which could bring prices down. But big oil producers have kept output down a bit to help keep prices up.

On balance, I can see oil at around the $75-80 level over the next few years — though I admit there’s a fair bit of guesswork in that.

FY22 was good for Tullow, with strong growth in revenue and profit. Cash flow rose too, which helped the firm to get its debt down. Since then, debt has been cut further in the first half of 2023.

Reasons not to buy

That debt though, might be the top reason not to buy the stock. At the end of the half, it stood at around $1.9bn (£1.45bn). And Tullow says it should be down to around $1.7bn (£1.3bn) by the end of the year.

That still looks like a big risk for a stock with a market-cap of only £450m.

Things on the debt front are going in the right direction, but I don’t see a lot of safety there. And it might only take a small fall in oil prices to turn today’s optimism into a new crisis.

Big oil

Smaller oil firms are at a lot more risk when times are tough. It’s why I tend to think any cash I have for an oil investment should just go to BP or Shell, and I should sit back and take the dividends.

But the growth investor in me does like the thought of a nice recovery from time to time. And if I have good diversification, I think I can afford a bit more risk for the odd buy.

Will I buy Tullow shares? It’s not a no-brainer. And valuing oil stocks is tricky. But I might go for just a few. H1 results are due on 13 September. I’ll wait and see what they hold.

The post Are Tullow Oil shares a no-brainer buy at 30p? appeared first on The Motley Fool UK.

But the Tullow share price has dipped over the last year, while other oil companies have surged. So what’s going on here?

Debt and valuation

Tullow is a heavily indebted business. Net debt is $2,336m (£1,940m), and that’s very considerable for a company with a £488m market-cap.

Such a sizeable debt burden can make it hard to value a firm. For example, it would have a forward price-to-earnings ratio around 1.7 — this is phenomenally low, but doesn’t reflect the impact of debt on the share price.

Valuing oil companies is also challenging because the calculation is dependent on oil prices. In 2023 — the very near-term — Tullow is forecasting free cash flow to come in at $200m, if the averaged achieved oil price is $100 a barrel, or $100m at $80 a barrel.

Higher oil prices have helped the firm bring debt down from $2.8bn in 2019. But net debt probably isn’t coming down quick enough for some investors.

Adding to these challenges is a tax dispute with Ghana. Last month, Tullow filed requests for arbitration with the International Chamber of Commerce in London over the $387m dispute.

At the time of writing, Tullow is trading at 33.6p, down from highs above 60p last year.

Positive catalysts?

Brent is still around $83 per barrel, but in the ever-changing world, it’s now looking like crude prices could push upwards this year.

This week’s big catalyst was Chinese PMI data, which came in far above estimates, at 52.6. The data suggested that Chinese factory activity had grown at its fastest in over a decade during the month of February.

In a stronger-than-expected global economy, with Chinese GDP growth pushing closer to 6%, according to some forecasters, we could see demand outstrip supply.

However, there are plenty of variables here. We know US stockpiles are higher than anticipated on a warmer-than-average winter. US oil inventories rose by 6.2m barrels in the week ended 24 February, and this data actually pulled spot prices down after the Chinese PMI data.

Despite this, I’m still expecting to see oil prices grow as the year continues — I’m not the only one. “Another round of upside surprise in China’s PMI further provides conviction of a stronger-than-expected recovery, which supports a more optimistic oil demand outlook,” said Yeap Jun Rong, market strategist at IG.

So would I buy this stock? Actually, it’s very tempting. JP Morgan set a target price of 56p for the company which, compared to the Tullow Oil plc share price of 33p, infers a 40% upside. Jefferies also has a price target of 48p, despite being down from 77p, is still some way above the current price.

With all this in mind, and my bullish outlook for oil, I’m looking to buy Tullow when I have the funds available.

The post Down 37%, this forgotten FTSE oil stock has a 40% potential upside! appeared first on The Motley Fool UK.

I had a lucky escape. But every time I see Tullow shares down in the dumps, I wonder if it might be time to get back in.

We’ve had a bit of an uptick so far in 2023. Since the start of the year, we’re looking at a modest 4% price rise. But the bigger picture isn’t too pretty. Over the past 12 months, Tullow Oil shares are down 33%. And over five years, the loss grows to a painful 82%.

In an update on 25 January, chief executive Rahul Dhir spoke glowingly. He said: “Strong operational delivery, rigorous focus on costs and capital discipline, the increased equity in our key operated fields in Ghana and higher oil prices drove material, expectation-beating free cash flow generation in 2022“.

Cash flow

Expectation-beating free cash flow can be a rare thing in the oil exploration business. So that’s good to hear.

The trouble, though, is that the cash needs to be used to tackle Tullow’s debt mountain. The CEO went on to speak of “accelerating the group’s deleveraging towards a net debt to EBITDAX ratio of 1.3 times by the year-end“.

If Tullow can achieve that, it could mark an important milestone. At the first-half stage in June 2022, that net debt to EBITDAX ratio stood at 1.9 times, so there’s still some way to go. Net debt itself was $2.3bn.

Valuation

Oil share valuation is tricky at the best of times. And debt makes it harder. Forecasts put Tullow on a price-to-earnings (P/E) multiple of only around two. What we have here, though, is a company with a market cap of £566m but with net debt of $2,336m (£1,887m).

To buy the whole company and pay off its debt, an investor would need to stump up £2,453m. We can use that to calculate what’s known as an enterprise value P/E, instead of just using the market cap. Doing that, we get a P/E of around 8.6.

That still might not seem too stretching for a company sitting on Tullow’s oil and gas assets. And that’s where the temptation to buy at today’s share price comes from.

Debt progress

But for me, it all comes down to debt progress. It is coming down, after the pre-Covid year of 2019 ended with $2.8bn. But progress has been intermittent, and debt management in 2022 was helped by oil price strength.

Oil is still around $85 per barrel. But it might well come down in the next 12 months. And that could make Tullow’s debt-reduction plan that bit more difficult.

So, I do see temptation in the current Tullow share price. But as long as I’d essentially be buying part of a huge debt with a small oil company tacked on, I’ll resist.

The post After the Tullow Oil share price crunch, should I buy again? appeared first on The Motley Fool UK.

Tullow Oil: recovery potential?

Shares in Africa-focused exploration and production company Tullow Oil (LSE: TLW) have fallen by more than 25% in 2022, despite soaring oil and gas prices. That’s left the stock trading on a 2023 forecast price-to-earnings (P/E) ratio of less than two.

One reason for this may be that the company has delivered a run of disappointing drilling results this year. A plan to merge with FTSE 250 peer Capricorn Energy has also failed.

Merging with cash-rich Capricorn would have cut Tullow’s debts. Without this deal, net debt is expected to be $1.9bn at the end of the year.

Indeed, my sums suggest that when Tullow’s net debt is added to its market cap (a common valuation technique), Tullow’s current valuation is roughly the same as that of FTSE 100 giant Shell.  

Unlike Shell, Tullow needs to stay focused on debt repayment and isn’t expected to pay a dividend.

Admittedly, Tullow has some good assets and could attract a private buyer. African oil baron Samuel Dossou-Aworet owns nearly 18% of the company and has been rumoured as a potential bidder.

These shares could offer value at current levels, but given the uncertain longer-term outlook, I’d look for companies with less debt and a nice dividend.

Just in time

Life insurance firm Just Group isn’t all that well known among investors. But I think this specialist business could be attractively valued, now that it’s completed a difficult restructuring period.

Just expects its second-half results to be strong. The company said in August that the outlook for 2023 was “very positive”. Despite this, the shares are trading more than 50% below their net asset value of 172p per share.

The main risk I can see is that this is a complex business that’s difficult for outsiders to analyse. It’s not easy to predict the impact of rising interest rates and changing regulations on future profits.

However, I’ve been following Just’s transformation for a while. I think the group is making good progress. With the shares trading on just four times forecast earnings, I think this FTSE 250 stock looks a decent buy for 2023.

8% yield from gas producer?

Energy group Energean (LSE: ENOG) is focused on gas production in the Mediterranean, off the coast of Israel. The group’s flagship Karish project is now ramping up. Karish is expected to produce 6.5m cubic metres of gas per year, when it becomes fully operational.

Broker forecasts are bullish and suggest that revenue will reach $937m in 2022, rising to $2,259m in 2023. Profits are expected to hit $860m next year, putting the stock on a P/E ratio of 3.1.

If things go to plan, analysts expect the shares to provide an 8% dividend yield next year.

Energean is a relatively new arrival to the UK market and the firm carries more than $2bn of debt. If profits fall below expectations, debt repayments might become a concern.

Things look good to me at the moment, but I can see some risks here. I’d view this as a possible speculative pick for 2023.

The post These are the 3 cheapest FTSE 250 stocks. Are they buys for 2023? appeared first on The Motley Fool UK.