Hunting snares cash profit beat

Hunting (HTG) knows how to impress investors: it set cash profit guidance on 30 June at $16mn (£13.5mn) to $18mn, and by beating that guidance in its half-year results with a $20.6mn profit, gets to celebrate a sizeable beat and a 16 per cent share price uptick. 

This marked a rebound to the price point the company was trading at when it released its 30 June trading update, however. Easy come, easy go. 

Achievable targets aside, the company had a strong first half, driven by both onshore and offshore operators. Hunting’s business is selling parts and services to the oil and gas industry, with its largest division selling into the US onshore market. 

Sales at this unit, Titan, climbed 43 per cent to $123mn while the addition of a new perforating gun should further support sales in the second half. Hunting has reopened one factory and expanded capacity at another in response to the higher demand.

Chief executive Jim Johnson said a “light switch” went on in January in terms of customer activity, and forecast even more spending next year as the focus turns to maintaining and even expanding production in this tight oil and gas market.  

“These operators are going to show Wall St that [they] were very capital disciplined through 2022, and it’s going to be a new game with budgets next year,” he said, highlighting natural gas plays as a key growth area. “Drilling has been very constrained [but now] hedging has fallen off for a lot of producers, and they’re brimming with cash.” 

Overall, the order book has also doubled to over $400mn on a year-to-date basis.

The improved top line has not yet translated into a profit, however, as costs climbed as well as sales, although the company hit “monthly pre-tax profitability” in the June quarter. For the half, the gross margin of 23 per cent was not far off 2019’s full-year figure of 24 per cent and well ahead of the difficult years in between. 

After the first-half cash profit beat, RBC Capital Markets analyst Erwan Kerouredan said the company’s momentum would carry on, thanks to “extremely constructive trends” and new products from the Titan unit coming on sale. 

Hunting's lack of profitability in a bull market is not ideal, but the coming 18 months should support better earnings and higher payouts. Buy.

Last IC View: Buy, 233p, 3 Mar 2022