Two of the biggest fallers today are Tullow Oil (LSE: TLW), which is down 7% as I write, and driver fatigue detection specialists Seeing Machines (LSE: SEE), down 10%.
In this article I’ll explain the news that triggered these falls — and whether I believe shareholders need to take action.
Tullow caught in dispute
Tullow Oil issued an interest statement today, informing investors that the development of its TEN Project in Ghana — which is expected to produce 80,000 barrels of oil per day by the end of 2016 — is being threatened by a maritime border dispute between Ghana and Côte d’Ivoire.
Tullow says that work on TEN is continuing as normal and remains on schedule and budget for completion in 2016.
However, today’s update makes it clear that Tullow could be forced to suspend operations on the project in April, if an application by Côte d’Ivoire for provisional measures preventing ongoing exploration and exploitation operations is granted.
A final decision on the case isn’t expected until late in 2017, and there’s no way of knowing how things will turn out, although Tullow says its legal advice is that Ghana, where TEN is based, has a strong case.
However, even before today’s news, my view was that on 24 times 2016 forecast earnings, Tullow shares were too expensive to buy — and this view has been strengthened today.
Seeing Machines gambles on growth
Seeing Machines sells systems to mining companies which detect driver fatigue, helping to prevent dangerous and costly crashes.
Strong sales growth helped push total revenues up by 41% to ADU$9.3m during the last six months of 2014, according to the firm’s interim results, which were published today.
The problem is that Seeing Machines is losing money: losses rose five-fold during the first half, to AUD$4.3m. The reason for this is that the firm is investing heavily in the research and marketing needed to try and sell its products to other sectors, such as the automotive industry.
Although I’m confident that this kind of technology is likely to become universal, I don’t know enough about Seeing Machines’ competitors to judge the firm’s chance of success.
For that reason — and because Seeing shares trade on an ambitious price to sales ratio of 5 — Seeing Machines won’t be added to my buy list, although I will continue to watch the firm’s progress with interest.
After all, investing in high-tech innovators like Seeing Machines can be exciting — but it’s very risky. For every Apple, there are thousands of failures.