What financial results for Hunting (HTG) sometimes lack in references to profit, they always make up for in candour and clarity of market insight. So while the oil services group’s half-year numbers contained several disappointments – including a $32m (£25m) adverse movement in working capital, $15m of negative free cash flow and an increase in otherwise minimal net debt – investors were compensated with a large dose of corporate optimism.
Hunting’s top-down view goes something like this: rampant US shale activity – which contributed to a surge in revenue in the first half of 2017 – has devastated investment in future offshore production. That has led to historically low levels of international and offshore drilling activity, and an oil price that has even come back to haunt the North American disruptors. Once this under-investment is revealed, and oversupply swings to a supply deficit, prices and activity will jack up. Concludes management: “the payoff will occur – the timing is the debate”.
The six months to June contained evidence that Hunting will benefit if this prophecy manifests. Unit sales of the H-1 perforating system exceeded the total number sold in all of 2016, although the number of global distribution centres and operational facilities dropped. Closure of the european drilling tools business contributed to $14.6m (£11.3m) of amortisation, which accounts for the bulk of the group operating loss.
On average, analysts expect a full-year pre-tax loss of $9.4m and a loss per share of 2.5¢, swinging to a profit of $42.2m and EPS of 21.2¢ in 2018.
HUNTING (HTG) | ||||
ORD PRICE: | 393.8p | MARKET VALUE: | £647m | |
TOUCH:393.7-394.2 | p | 12-MONTH HIGH: | 650p | LOW: 405p |
DIVIDEND YIELD: | nil | PE RATIO: | na | |
NET ASSET VALUE: | 660¢* | NET DEBT: | 0.5% |
Half-year to 30 Jun | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
2016 | 228 | -77.7 | -40.3 | nil |
2017 | 319 | -25.3 | -15.6 | nil |
% change | +40 | - | - | - |
Ex-div: | na | |||
Payment: | na | |||
£1=$1.28 *Includes intangible assets of $367m, or 224¢ a share |