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Hunting looks for foothold

The oil & gas services group is faced by a potential softening in the US onshore shale industry
August 29, 2019

Hunting (HTG) has turned in a solid first half performance but clouds over the US onshore shale industry and declining oil prices mean that the trading backdrop could deteriorate through the remainder of this year. To mitigate any problems on terra firma, the oil and gas equipment specialist has been attempting to increase its exposure to offshore clients, while driving scale and expanding capabilities through acquisitions.

IC TIP: Hold at 451p

Underlying earnings were down 6 per cent to 23.6¢ a share, though underlying cash profit was 7 per cent to the good at $77.4m. Free cashflow nearly tripled to $60m, albeit on a sharp reduction in working capital commitments. Given the increased liquidity, management felt able to boost the half-year dividend pay-out by a quarter. But Hunting is eager to manage expectations. Chief executive Jim Johnson is not optimistic about an oil-price driven recovery in the second half. 

Mr Johnson said the group’s exposure to the sector was limited to the Hunting Titan business, which saw underlying profits fall 29 per cent to $42m in the first half. This drop partly came from discounting to “retain market share”, which also pushed the overall gross profit margin from 31 per cent a year ago to 29 per cent.

Despite the fall, Hunting Titan still generated around 40 per cent of underlying profit. The US connections and subsea division contributed $12.9m whilst the Europe, Middle East and Africa division swung from a loss to an approximate breakeven position, aided by increased activity from clients in the North Sea and Netherlands. 

Indeed, the counterpoint to Hunting’s worries over the oil price-driven US onshore business is its enthusiasm for subsea prospects. The $12.5m spend on RTI Energy Systems was a “bet on the recovery of deep water”, Mr Johnson said. He also flagged more sub-$100m, offshore-completion related M&A. 

Bloomberg forecasts are for full-year cash profit of $154m and reported EPS of 38¢, climbing to $175m and 48¢ in 2020. 

HUNTING (HTG)    
ORD PRICE:451pMARKET VALUE:£753m
TOUCH:450-451p12-MONTH HIGH:884p402p
DIVIDEND YIELD:1.8%PE RATIO:10
NET ASSET VALUE:719¢*NET CASH:$80.5m**
Half-year to 30 JuneTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
201844338.019.94.0
201950940.118.05.0
% change+15+6-11+25
Ex-div:03 Oct   
Payment:23 Oct   
£1=$1.22  *Includes intangible assets of $316m, or 189¢ a share  **Excludes $47.1m in lease liabilities