Are Tullow Oil plc, Anglo American plc & SOCO International plc Really Worth Less Than In 2005?

How much worse can things get for shareholders of Tullow Oil plc (LON:TLW), Anglo American plc (LON:AAL) and SOCO International plc (LON:SIA)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The shakeout in the commodity market is becoming brutal. Shares in some major firms are now worth less than they were 10 years ago, in 2005.

Here at the Fool, we generally advocate long-term investing, but shareholders in Tullow Oil (LSE: TLW), Anglo American (LSE: AAL) and SOCO International (LSE: SIA) may rightly feel this approach has not worked for them:

Share price

Should you invest £1,000 in Barclays right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Barclays made the list?

See the 6 stocks

15 August 2005

19 August 2015

Tullow Oil

205p

203p

Anglo American

1,470p

725p

SOCO International

150p*

132p

*Adjusted for 2010 4:1 share split

The biggest loser here appears to be Anglo American, where shareholders are 50% down on ten years ago.

At Tullow and SOCO, dividends and cash returns may mean that investors are still in the black. However, I suspect that when inflation and dealing costs are factored in, it’s still a dismal picture.

The other side of the coin, of course, is that these companies’ assets and liabilities have changed over this time, as have their earnings. Tullow, for example, has more oil and gas, but also more debt.

Are any of these stocks compellingly cheap at today’s prices?

Tullow Oil

Tullow shares rose from 43p in 1995 to an all-time high of 1,511p in February 2012, before beginning a dramatic descent that has wiped nearly £12bn off the firm’s valuation in just 3.5 years.

 

August 2005

August 2015

Market cap

£1.1bn

£1.9bn

Enterprise value (market cap plus net debt)

£1.25bn

£4.2bn

2P reserves (millions of barrels of oil equivalent)

173.36 mmboe

329.2 mmboe

EV/2P boe

$11.27

$19.9

Although Tullow’s market cap is now comparable to 2005, the firm’s net debt has risen significantly, giving the firm a much higher enterprise value. Tullow’s reserves have also risen during this period, but not enough to counteract this big rise in debt.

As a result, Tullow now has an EV/2P valuation of $19.90 per barrel of oil and gas reserves. That’s 76% higher than in 2005.

Although Tullow does have significant undeveloped assets, which are not reflected in its reserves, I’m going to steer clear of Tullow for a little longer. I’m not sure we’ve seen the bottom yet.

Anglo American

These numbers highlight the cyclical nature of the mining business:

 

August 2005

August 2015

Market cap

£22.2bn

£10.2bn

Enterprise value (market cap plus net debt)

£26.7bn

£18.8bn

Adjusted earnings per share

138p

91.5p

Adjusted pre-tax profit

$4.6bn

$2.5bn

We are currently at a fairly low point in the cycle, in my view, although we may not yet be at the bottom. Despite this, I think Anglo shares look a fairly reasonable buy after recent falls. The current share price gives a 2015 forecast P/E of 12, falling to a P/E of 10 for 2016.

Income hunters should probably treat Anglo’s prospective yield of 7.1% with caution, however. If current market conditions persist into 2016, I’d expect this payout to be cut.

SOCO International

SOCO shareholders received a painful blow in March, when the firm admitted that its proven and probable reserves had been downgraded from 125.1 mmboe to just 40.8 mmboe. This reduction was due to lower oil and gas prices making the economic viability of some of resources uncertain.

SOCO shares nosedived and have yet to recover.

 

August 2005

August 2015

Market cap

£105m

£432m

Enterprise value (market cap plus net debt)

c.£75m

£370m

2P reserves (millions of barrels of oil equivalent)

133.2 mmboe

40.8 mmboe

EV/2P boe

$0.90

$14.2

As the figures above show, the firm looks considerably more expensive on an EV/2P basis than it did in 2005. Without further research, I’m not sure whether the balance of oil and gas in SOCO’s reserves has changed over this period, which might help explain the extreme valuation difference between 2005 and 2015.

Regardless of this, SOCO’s EV/2P of $14.2 per barrel doesn’t look especially cheap to me. With the dividend expected to fall by 50% in 2016, I wouldn’t rush to buy quite yet.

However, the problem with cyclical stocks is that you cannot usually identify the peaks and troughs until they have passed.

But this isn’t the only opportunity that’s caught my attention this week. Here are:

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head owns shares of Anglo American. The Motley Fool UK has recommended Tullow Oil. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

These 4 FTSE shares have crashed hard. Which do I like today?

These four FTSE 100 stocks have plunged in value over the last month. But after this latest market meltdown, which…

Read more »

Investing Articles

1 FTSE 250 stock that analysts are calling a ‘Strong Buy’

The FTSE 250 can be overlooked by investors, but analysts believe this stock in particular could be undervalued by as…

Read more »

Close up of a group of friends enjoying a movie in the cinema
Investing Articles

I asked ChatGPT to name 5 FTSE shares for the perfect SIPP. Here’s what it picked

Harvey Jones called on ChatGPT to help him decide which shares would be right to buy for a well-balanced SIPP.…

Read more »

Investing Articles

Should I load up on Rolls-Royce shares after the 17% drop?

Rolls-Royce shares have pulled back sharply in the FTSE 100 in recent weeks, leaving this Fool to wonder if he…

Read more »

Investing Articles

Is this the best S&P 500 stock to consider buying in these volatile times?

With bullion prices still rocketing, I think buying the S&P 500's only gold stock is worth serious consideration right now.

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Yielding 7.25% but with a P/E of 186x! What’s up with the BP share price?

Harvey Jones thought the BP share price was a brilliant bargain but it's only brought him a world of trouble.…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

Down 26% with a 7% yield! Could this little-known FTSE 250 gem make a comeback?

Mark Hartley considers the long-term prospects of FTSE 250 recruiter Page Group. Weak results have sent the price tumbling but…

Read more »

Investing Articles

Analysts are calling Diageo shares a strong buy! Are they mad?

Analysts still have faith in Diageo shares, with 10 of them giving it the highest possible stock rating. Harvey Jones…

Read more »