Hunting lagging energy boom

Oil and gas services and equipment company Hunting (HTG) is still in operating loss territory despite the massive uptick in spending in the energy industry. Hunting is hugely exposed to the US shale industry, which has been a drag on earnings in recent years but even the resurgence of the past 18 months was not enough to take it into the black. 

Chief executive Jim Johnson said oil and gas undersupply would provide a “basis” for an increase in sales this year. The 2021 numbers did not show improvement – sales were down on 2020 and the underlying loss doubled to $41mn (£31mn).

Johnson said the sales had seen an improvement, however: “Every business unit and region is witnessing increased demand for its products as evidenced by rising backlogs which have notably expanded since the start of the year given a new budget cycle”. 

Hunting’s numbers show not everything is back to the good ol’ days in the industry: the global drilling spend in 2021 was over a third below 2018’s $222bn. Sales at the onshore US division, Hunting Titan, rose 17 per cent, to $189mn. Overall, losses narrowed but so did the underlying gross margin, from 20 per cent to 19 per cent. 

One thing for investors to keep an eye on is goodwill amortisation and revenue recognition – Hunting's auditors raised multiple 'key audit matters' around the 2021 results which mean they were not initially happy with the accounting. 

Consensus estimates compiled by FactSet see the company returning to operating profit this year, at $11mn. 

We picked Hunting as an oil recovery play but it has massively underperformed the rest of the industry, as services spending has climbed far slower than forecast. We'll stick with the positive call, however. Buy. 

Last IC View: Buy, 197p, 27 Aug 2021