Leading shares slip back from highs as investors cautious on Greece, Fed and electionDespite positive moves from the heavyweight banking and mining sectors, leading shares have lost early gains to fall into negative territory.Worries about a possible Greek default were to the fore after Friday’s fractious meeting between the country and its eurozone creditors, while investors are also nervous ahead of this week’s US Federal Reserve meeting. With weaker US data recently it is not clear when the Fed has pencilled in an interest rate rise, with some analysts suggesting a move in June may still be on the cards, but others believing the central bank will wait a little longer.Although the ruling is broadly as we anticipated, we believe it should be viewed positively and reiterate our overweight rating and 550p price target.Tullow requires clarification on whether the ruling on no new drilling until the case is resolved (due during 2017) includes further Ten development wells. In a pessimistic scenario, plans for additional development drilling from late-2016 may be restricted. However, the impact of this could be mitigated by a negotiated resolution between the countries or a strong production performance from the initial well stock. We believe clarity on the issue could come during the next month, but do not see it as an urgent concern.With no suspension to the Ten project, ample credit headroom and revised covenants, concerns over Tullow’s balance sheet should be alleviated. We expect Tullow to get to Ten first oil mid-2016 without exceeding available credit lines or breach covenants on our conservative oil price deck (2015/16/17: $57/63/68 a barrel). Therefore, we don’t see Tullow having to slow its East Africa development to conserve cash. Continue reading...
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