Market also supported by better than expected eurozone GDP figures, with Dax at new highA rise in oil and mining companies pushed leading shares to a five-month high after another volatile week.A ceasefire agreement in Ukraine and the hope that Greece can agree a deal with its creditors at a key meeting on Monday combined to lift the FTSE 100 45.41 points higher to 6873.52, its best level since 4 September.Since we established our thesis on Tullow in September 2014, the company has taken most measures that we felt were necessary in the current environment, including cutting exploration costs and the dividend. Given our belief that it is the assets that differentiate the company, we would expect these measures to eventually result in value recognition by the market.At the analyst presentation, management was very clear that at present it does not intend to raise equity. While we believe that Tullow is one of few companies that in the current environment could actually execute a rights issue, we see the cuts in exploration, general and administrative expense and dividend as much more sensible initial steps in protecting the balance sheet.Virgin Media’s increased ambition is a material threat to BT which is presently the only broadband infrastructure provider to around 50% of UK homes. We have recently been concerned that other operators may also be tempted to roll-out fibre (eg, Vodafone and TalkTalk) but perhaps this news makes them less likely to do so or alternatively, could trigger a rush to invest in areas not being considered by Virgin Media. BT in turn may feel pressured to accelerate the roll-out of its own fibre network (i.e. g.fast) with the risk of rising capex/weaker free cashflows...Though there is no immediate financial impact as a result of this news, the risk of rising medium term capex, and market share loss, perhaps equivalent to around 5% of BT’s consumer base (plus business customers) is unhelpful for estimates. In the near-term, the merger between BT and EE will create a hiatus (up to one year) which competition will use as an opportunity to make gains in UK fixed/mobile, partly at BT’s expense. Escalating sports content costs make it more difficult for cost cuts at BT to offset any competitive impact. We see better value elsewhere in a more broadly recovering European telco sector at this time. Hold.The company is continuing discussions with the advisers to the ad hoc committee of its largest bond holders regarding the immediate liquidity and funding needs of the business. The company is also having discussions with its existing stakeholders and new third party investors regarding recapitalising the company. Continue reading...
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