Sunday, June 12, 2011


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So I have been going back and forth with my cousin on Tullow Oil Ghana’s secondary listing on the Ghana Stock Exchange and I decided to post a slightly edited transcript here for your benefit as always. My cousin is Kwaku Addo Akuffo an investment guru in the making and certainly one of the most intelligent people I know. I take his word very seriously, even when I do not agree with him. He is going to be the next Warren Buffet of Africa, just you watch.
For more info, please visit the Tullow Oil Ghana Website as well. Read below carefully if you are interested in the share offer:

CUZO: Tullow Oil Ghana Limited will list (sell) 4,000,000 shares at GH¢32 per share (if my sources are right) on the Ghana Stock Exchange, the offer starts on Monday June 13th, minimum subscription is 3 shares (GH¢96) a great way to own a piece of the operators of Ghana's Jubilee Field. Also the Prospectus should be out Monday, contact IC Securities in Accra for further details.

MOI: Advice I gave to a friend; now to all interested parties.
Pros: Best stock offering on the GSE. Will be very easy to trade, liquidate, discount or use as collateral. Assured dividend revenue stream. Tullow is set to make more discoveries, and this will drive the share price up significantly over the next 2-3 years. 
Cons: Its very expensive, at ¢32 a share, even if you have ¢10000 that will net you 312.5 shares, that is peanuts in terms of volume. How much profit can one expect to make then.
Verdict: I say buy and hold for this period and then trade in a portion, say 40% of stake especially when you have made back your principal investment which will take some time; the rest is pure profit. Its a safe store of value no matter the amount you purchase, especially now with all the momentum in the industry, and all the hype about Ghana's oil!
PS: As your strategic consultant, this advice is normally not free. But in this case I will waive my customary fee for 5% of your first dividend or free Omotuo Special on Sunday, whichever one is more #forreal

CUZO: Haha....You have got to wait for the prospectus before taking any "buy" positions. I say so because I looked through preliminary IPO docs on their site, the success rate of their wells finding oil has gone from around 88% to somewhere in the region of 83%. Aside that, the mere fact that there would be more discoveries in offshore Ghana does not guarantee profits since their operations seem to be offshore therefore you should price in higher risk in relation to their assets. On the plus side with crude prices above 100 bucks a barrel it bodes well 4 E&P (exploration & production) firms like Tullow.
Word of caution you are buying into the global operations of Tullow Oil & not just their local Ghanaian operations, so you should consider amongst other things "the global economic recovery" "current/predicted prices of crude oil" "the supply & demand of crude", a decision to invest in Tullow cannot be solely made based on operations at the Jubilee field.
PS: 4 million shares might not seem as liquid (easy to trade) considering its pricing & also that sum listed firms have higher volumes on the market, lets not forget before Comet's IPO fell thru, they had planned on listing 60m+ shares on the market, that would have been more fairly liquid & also we are yet to know the details of what the $85m that Tullow is raising (assuming all shares are allocated) would be used for.

MOI: Lol, I think you are too cautious in your assessment; Ghana is not facing a slump in its markets oh! You make some interesting arguments as usual; here is my rebuttal, as always:
Now Stock Markets are like casinos, and traders/investors are just like gamblers. Since they operate on free market forces, this means simply that buying/selling shares means you are taking a calculated bet; any trade is a gamble that you will make more money than you brought to the table. So whatever stock you are picking, you are gambling; and never in any prospectus have I read anything negative, its always simple advertising for the masses; you need to dig much deeper than that son. COMET tanked because they tried to do things the Yankee way, forgetting say we are in Ghana - The dynamics on the ground are very different here, as you will soon learn.
A decision to purchase any shares may be made based on any of several considerations; but there is not SINGLE SET FORMULA, everybody has their own strategy. Lets not fool ourselves (or anybody else for that matter) that all the complex algorithms and technical talk mean much, especially in a bearish market; trading stocks is not a science, it’s an art. Even the very best always make mistakes when they pick stocks, rate stocks et al - so sometimes it is not solely about the information you get from the firms and the market but also on macro/micro-economic trends in-country, and not necessarily Global because our economy is VERY loosely tied with other financial markets since we are not yet sophisticated enough. That is why despite this ongoing economic Crisis/Recovery our banks and capital markets STILL FLOURISHED independently. We are not tied into the NYSE, LSE, Singapore, Dubai, Japan, so when considering stock market advice, it is BEST to look at Ghana Stock Exchange as an Independent Microcosm for now. Nigeria and South Africa are markedly different, because they have hundreds of registered companies between them – NSE has almost 300 & JSE almost 500 – and attract a lot of foreign capital, they have fully matured.
But in Ghana we barely have 40, yes 40 companies listed on the GSE with a market capitalization not even up to $15 billion, this is a drop in the bucket cuz and in such a SMALL pot, shares are mostly stagnated, rarely traded and neither really go up or down. The GSE-C1 & PSI indices are among the most boring in the world and holding stocks rarely increases value significantly even over the long term. But this Tullow deal changes everything because they are being "compelled" to list, as will all the other operators in due course. WHY? To encourage Ghanaian participation/ownership of our oil resource; okay well the few indigenes than can afford it I guess. If successful it will grow the exchange significantly over the next 5 years; this may be the very game changer the market needs to shake things up. It will also open up our market to attract more foreign investor interest, and that is perhaps why its been priced out of the range of the average Ghanaian; as to whether that is good or bad considering its about oil here is another discussion by itself. But generally, attracting foreign investors is beneficial, they may even splurge on other stocks as well to diversify their local portfolio, and pull in even more investors and foreign capital inflows, you see where I’m going with this.
Now on the technical issues you have raised, it is true you cannot rate a stock buy/sell or avoid on operations in just one field in one country when you have large diversified capital markets. But in Ghana, we have only one Stock Exchange, and it is relatively very small and not tied into other global market hubs - if the Dow, Nasdaq or FTSE drop, I don't hear the local manager of AngloGold Ashanti (AGA) crying over their stock price, maybe in South Africa, but definitely not in Ghana. What does that mean, it means INDEED you base most of your decision on the LOCAL operations of the firm - see Guinness Ghana Breweries Ltd, if I were to advise anybody whether or not to buy their shares, who cares what is going in Ireland (their HQ) or US, or London or anywhere else. It would be based mostly on their performance in Ghana, their market share et al. So the same logic applies to this Tullow deal, in an immature capital market, decisions must be localized until such a time that markets grow and accumulate enough interest and activity to warrant taking a wider lense to sweep the facts. Even then, its a gamble either way, and despite all the seeming complexities of stock trading, a lucky monkey could make more money than a highly skilled broker, non?
I still rate Tullow shares BUY A+ if you can, you don't want to miss out on the best deal the GSE has offered since its inception!

CUZO: Treading cautiously since I am yet to read the prospectus but I don’t buy the argument of GGBL; that’s an autonomous subsidiary but Tullow Ghana would be directly impacted by Tullow Oil Plc's global operations, capital spending decisions, asset allocations are all determined by HQ (from listening to the last earnings conference call in March).
But regardless I do agree with your point of it attracting foreign fund manager attention to the GSE, not to give anything away but I am fairly bullish on Tullow bearing in mind in the past 5ys 4rm 05 to 09, revenue was highest in 08 (we know what happened to crude prices then) & with Jubilee coming on stream, that should up their revenues significantly & having dealt with the tax issue in Uganda and having brought in other highly capitalized firms into partnership to develop the Uganda find, I think Tullow has bright prospects.
On Comet, I say it came down to the valuation of the biz, how can u give Comet, an 8yr old regional (1 development by Accra) real estate firm a market valuation of $300m, that would mean applying that same logic to Regimanuel which has operations in the sub region, Sierra Leone, a strong brand name, much longer years of been a biz, at say 4 times Comet's valuation, should put Regimanuel at $1.2bn (dis is a very conservative estimate) n u n I know Regimanuel cud be 10x bigger than Comet, that would value Regimanuel at $3bn almost 10% of Ghana's GDP.

MOI: Loool.....Well the point I was making is simply reinforced here that despite all these complexities there is no single method of valuing shares or rating them. You were also initially bullish on Comet if I remember correctly (as usual you were on point with the first hand scoop :), but I was not in the least interested, they barely had any fundamentals to speak of. As for these valuations, sometimes they are not based on reality, you complain of Comet but how about LinkedIn’s recent IPO, how much revenue do they even generate - 4/500 mill annually yet their market cap is nearly 10 billion cuz, how many days since the IPO? That is why it’s a gamble either way, lets not pretend we are fortune-tellers, rather we are taking a very calculated guess.
Now I'm not saying Tullow Global’s operations won't impact Tullow Ghana. What I am saying is that dual listing or triple listing on a variety of stock exchanges provides some protection against unfavorable movements in each other. Example, if Tullow oil shares on the LSE fall, that doesn't necessarily mean that they will fall on the GSE. In the same way that if Tullow finds a 400 million barrel reserve tomorrow, shares won't automatically jump, as was witnessed when they announced Tano, that day their shares actually tanked by 2%. But in the long run, we can safely postulate that the share price will increase significantly especially if this share offer is very successful. It is a test in the waters, and I am quite optimistic about it, because if it doesn't go well, then it will set the GSE back in terms of attracting external funds and becoming more robust and active - that won't happen of course.
Another point I didn't bring up prior was that Tullow has always been focused on African energy plays from its very beginnings. When Heavey formed it '85 he was hunting for oil in Senegal, and Jubilee represents one of their biggest successes to date, so Ghana is very important to them. In that sense, investors can rest assured that they will ensure to keep their Ghana/Jubilee et al on the forefront of their now diversified and global operations. 
Lets also talk about the prospects elsewhere, that may also have knock on effects. Hess, Lukoil/Vanco, Oranto, Gasop etc all these are on serious E&P and though they are not Jubilee partners, any discovery they make may also drive Tullow Ghana shares up as well. I cannot release confidential information here, save to say this, there is ALOT more oil out there than we originally thought - my conservative estimate is that we may have as much as between 5-7 billion barrels recoverable by 2013. And whether crude oil price remains above or below $100 doesn’t change the fact that Ghana's crude is among the top 3 sweetest (best) light crudes in the whole world. Our oil will thus command a premium over all other crudes. Occupying the same vaunted halls as Oseberg & Ekofisk (North Sea) as well as Nemba (Angola). It is even better than Qua Iboe, Bonny and Brent [remember the Tullow Oil Capital Markets doc]. All this points to one fact, these shares have no way to go but UP, and rapidly so.
I predict!

CUZO: I was bullish on the real estate sector in general and not specifically COMET, with regards to COMET after an initial preview of their prospectus I had a lot of reservations about their share offer and did indicate in an email to you and a couple of others, not to participate in the share offer and I believe I was vindicated when the IPO did fall through (failed to raise the money). Don’t get me wrong the prospects of Tullow and other Africa focused energy firms like Afren look bright and taking that into account I also see upside in the shares of Tullow, but like you rightly pointed out this IPO if successful should catch the attention of Africa focused fund managers and emerging market funds to look closely at the Ghana Stock Exchange which in turn will have multiple effects on other listed companies in the sense that foreign fund managers might want to add some of these listed companies to their portfolios to diversify their risk, so I am glad overall that Tullow has shown its commitment to the people of Ghana through this listing and also look forward to other key players in the Jubilee field, such as Warburg Pincus/Blackstone backed Kosmos, listing on the Ghana Stock Exchange. I believe these developments re-inforce my bullish stance on investing in Ghana and Africa as a whole.

MOI: As always blood, I appreciate your thoughts and I will read through the prospectus when its available. Lets rack up them billions because NOW is the time for Africa! Bless :)


We both got tired at this point, I believe we both prefer to be financially rewarded for our services however this is free advice to the masses so we hope this helps. I believe we both raised some very pertinent issues to do with the Share Listing that any potential investor may benefit from.
For further in depth consultation, you may contact us via Facebook, please make sure you are cash heavy and light on wahala!
PS: Tullow Oil Ghana has not paid us for this oh but in case they see this and we get some contracts that’s not bad at all, non? ;)

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