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Hunting signs of optimism

Shares in the wellhead services group have had a very good run in a bleak market, and the positive signals are starting to catch up with investor hope.
September 5, 2016

In March, Hunting (HTG) chief executive Dennis Proctor said the deterioration in energy prices and ensuing demand from oil companies had left the group "without a single path to guide us". Six months on, the oil services group has seen "fragile optimism" that points to "a recovery but with uncertain speed".

IC TIP: Hold at 469p

This optimism hangs on a handful of emerging trends. Onshore operators can now generate free cash flow at $50 (£37.50) a barrel, down from $90 two years ago, while global producers are reviewing production gaps and surplus inventories are smaller. A few of Hunting's units are also reporting an increase in enquiries. For example, the well construction business - which slumped to an underlying loss of $10.8m in the period - has seen a cautious uptick in demand from smaller drillers in the Williston and Permian basins in the US.

Management will be hoping the latter source of demand will start to surge, because the group made a cash loss of $29.5m in the period, even before some heavy amortisation charges and exceptional costs. So despite a reduction in the debt pile in the same period, Hunting needs to start doing a lot more with less; particularly now that staff numbers have fallen 46 per cent from their 2014 peak.

Prior to these figures JPMorgan Cazenove gave an adjusted earnings loss of 51¢ per share for the December year-end, narrowing to a loss of 17¢ a share in 2017, before a positive reading of 7¢ for 2018.

HUNTING (HTG)

ORD PRICE:469pMARKET VALUE:£699m
TOUCH:468-470p12-MONTH HIGH:490pLOW: 232p
DIVIDEND YIELD:0.6%PE RATIO:NA
NET ASSET VALUE:723¢*NET DEBT:8%

Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
2015464-65.8-35.54.0
2016228-77.7-40.3nil
% change-51---

Ex-div: na

Payment: na

£1 = $1.33. *Includes intangible assets of $394m, or 264¢ a share.