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Hunting directors trying to pick the bottom

Oil and gas services company struggling because of onshore US industry weakness
October 15, 2020
  • Two principals buy in as oil services market remains under pressure
  • Conditions in the US onshore segment do not indicate a quick recovery
IC TIP: Sell at 141p

Hunting (HTG) reached a 16-year low this month, thanks to its reliance on the onshore US oil and gas industry, to which it sells parts and services. This has been the hardest hit part of the sector given the higher cost production and storage limitations of the region. The valuation is now well below its 30 June working capital balance of $429m (£331m), at £229m.

Investor pessimism comes from the oil price staying low and the squeezed balance sheets of US onshore producers. Last year was considered a tough year for the producers, so the price crash in March hit extra hard. In response, Hunting mothballed one plant and shut another permanently, and let go over 600 workers to cut costs in the first half. This is a sizeable number for a company of around 2,200 people. 

Despite the challenges and massive fall in value, the dividend has returned - pushing the yield to almost 3 per cent – while Hunting has held onto a net cash position of $5.5m as of 30 June. It impaired inventory to the tune of $33m. 

It is perhaps with these factors in mind that chief executive Jim Johnson and finance director Bruce Ferguson bought 50,000 and 14,000 shares each respectively, in the first week of October. Mr Johnson paid 122p a share, making his new stake worth £61,000, while Mr Ferguson paid 122.6p.

Hunting’s state will be clearer after it releases a September quarter trading update on 27 October. Barclays analyst Mick Pickup flagged possible inventory discounts as a further problem, although said the share price was “covered” up to a 50 per cent drop. In the half-year results, the company impaired its inventory value by $33m because of the weaker market. The company has had better results from its subsea division, although those contracts have also fallen.

Consultancy Rystad Energy forecast global offshore spending commitments at $34bn for 2020, down from $101bn in 2019. Onshore is in even worse shape, falling to $19bn from $89bn, although Rystad sees a strong recovery in 2022 to over $100bn. Conditions in the US do not indicate a quick recovery for the onshore industry and therefore Hunting’s key Titan division. At 140p, Hunting could be a steal, and the bosses might have picked the bottom. But there could also easily be more pain to come given circumstances out of the company’s hands. Sell. 

Last IC view: Sell, 189p, 27 Aug 2020

Buys      
CompanyDirector/PDMRDateNo. of sharesPrice (p)Aggregate value (£)Comments
Admiral GroupGeraint Jones (cfo)5 Oct 201932,6925,196 
Anglo AmericanMarcelo Bastos10 Oct 205001,859.49,297 
HarworthKaterina Patmore (cfo)8 Oct 2011,21289.210,001 
HarworthLynda Shillaw (ce - elect)12 Oct 2052,5459549,760 
Headlam GroupPhilip Lawrence8 Oct 2011,184266.729,822 
HuntingBruce Ferguson (fd)6 Oct 2014,000122.617,164Holding 101,835 shares
HuntingJim Johnson (ce)6 Oct 2050,00012261,000Holding 367,629 shares
KromekRakesh Sharma8 Oct 20178,45411.219,987Holding 1,611,473 shares (1.88 per cent)
Naked WinesNicholas Devlin (ce)9 Oct 208,25042034,650 
Naked WinesNicholas Devlin (ce)12 Oct 202,030438.88,907Holding 65,480 shares (0.09 per cent)
Next Fifteen CommunicationsRichard Eyre (ch)9 Oct 205,000492.124,606Holding 20,000 shares (0.13 per cent)
Power Metal ResourcesEd Shaw9 Oct 201,000,0001.312,985 
Power Metal ResourcesPaul Johnson (ce)9 Oct 201,000,0001.313,010SIPP - Holding 59,000,000 shares (7.21 per cent)
QuixantJon Jayal (ce)12 Oct 204,1911194,987 
QuixantJon Jayal (ce)12 Oct 204,1561204,987Holding 383,547 shares
River and MercantileJames Barham (ce)8 Oct 2012,900152.419,665Holding 178,454 shares (0.05 per cent)
River and MercantileSimon Wilson (cfo)8 Oct 206,314157.49,938 
Rolls-RoyceGeorge Culmer9 Oct 208,76022719,885 
Silence TherapeuticsIain Ross (ch)9 Oct 209,75041039,975SIPP - Holding 54,443 (0.07 per cent)
Silence TherapeuticsDavid Lemus9 Oct 201,2504005,000Holding 6,876 shares (0.01 per cent)
Silence TherapeuticsJames Ede-Golightly9 Oct 203,00040912,270Initial stake
Silence TherapeuticsDr. Giles Campion9 Oct 204,94540419,978Holding 14,945 shares (0.02 per cent)
StagecoachLynne Weedall12 Oct 2012,00038.84,654 
TescoSimon Patterson8 Oct 2070,423211.2148,719 
TP ICAPRichard Berliand (ch)9 Oct 2025,000229.357,330 
TP ICAPNicolas Breteau (ce)9 Oct 2010,00023023,000 
Sells      
CompanyDirector/PDMRDateNo. of sharesPrice (p)Aggregate value (£)Comments
AnparioKaren Prior (fd)8 Oct 2074,751400299,004Holding 74,751 shares (0.3 per cent)
Gamma CommunicationsAndrew Stone5 Oct 2012,0001,650198,000 
Gamma CommunicationsAndrew Stone5 Oct 2088,0001,6561,457,293Holding 600,601 shares (0.6 per cent)