10.01.2025
Next Tuesday morning will see Hunting (LON:HTG) issue a Trading Update for the year to the end of last month.
In late October last year, the company gave out a lower-than-expected guidance for the year, the effect of which was enough to swipe more than 23% off the group’s shares, seeing them back to 299p from 389p the day before.
They are now edging gently better, currently 303.50p, ahead of next week’s statement.
The Business
Hunting is a global, precision engineering group that provides precision-manufactured equipment and premium services.
The company maintains a corporate office in Houston and is headquartered in London.
As well as the UK, the company has operations in China, India, Indonesia, Mexico, Netherlands, Norway, Saudi Arabia, Singapore, the UAE and in the USA.
It has five product groups: OCTG, Perforating Systems, Subsea, Advanced Manufacturing and Other Manufacturing.
The group has five operating segments: Hunting Titan; North America; Subsea Technologies; Europe, Middle East and Africa, and Asia Pacific.
Its manufacturing footprint is around 50% in the United States, with the balance widely spread in Europe, Asia & the Middle East.
It is a specialist manufacturer of customised, high-value components typically for the oil & gas industry, with its chief product lines being perforating guns & associated systems, oil country tubular goods premium connections, subsea, and advanced manufacturing.
Almost all of its businesses provide high-performance equipment, typically manufactured to tight tolerances using CNC equipment and to a mixture of Hunting and third-party specifications.
Buyers for its products include the oil service majors such as Schlumberger, Baker Hughes & Halliburton, with which it also competes, as well as oil companies directly and a wide range of customers in other industries.
These include geothermal and carbon capture, as well as aviation, defence, space, and other specialist capital equipment applications.
Its manufacturing footprint serves these customers worldwide, and hence activity in one region may be used for projects elsewhere in the world.
The Q3 Trading Update
On Wednesday 22nd October the group announced its Q3 2024 Trading Update and the securing of $300m of new borrowing facilities.
At that time CEO Jim Johnson stated that:
"Hunting has delivered a 16% year-on-year increase in its year-to-date EBITDA result, as positive increases in trading were recorded across most product groups.
The Group's revenue and earnings continue to pivot towards our OCTG and Subsea businesses, which reflect the wider market momentum but also Hunting's diversified portfolio of products.
We are delighted to have commenced shipments of OCTG to KOC in the period and we look forward to building a strong relationship with the company in the coming months as new opportunities arise.
Thanks to the hard work of the dedicated team, we are ahead of the delivery schedule.
The $60m of OOR contracts secured in the period has also been another milestone.
We have a high level of confidence that new orders from other major energy companies will be secured in the short to medium-term, as the advantages of the technology are captured by our clients.
Our balance sheet remains strong, coupled with a significantly improved year-end cash projection.
We are pleased to have agreed new borrowing facilities in recent days.
Accordingly, Hunting now has c.$393m of liquidity available to pursue growth opportunities in the energy and non-oil and gas sectors.
Management is also continuing to review high-quality acquisition candidates, with our focus being on subsea and well completions.
Our 2024 full-year outturn had been predicated on a strong international market coupled with some improvement in our US onshore businesses.
Whilst the outlook for the international and offshore subsectors of the industry continues to remain firm, the slower than anticipated improvement within the US onshore has led to a deterioration in our short-term trading expectations.
As a result, we are reducing EBITDA guidance; however, we still expect to be broadly within the range guided at the start of the year."
Analyst’s Views
At Zeus Capital, analyst Daniel Slater adjusted his figures to look for $1,092.9m in 2024 sales, with $82.5m of adjusted pre-tax profits, earning 35.0c per share and easily covering a payment of 11.5c in dividends, the broker has a 425p valuation on the shares.
For the year now underway, he estimates $1.204.8m of revenues, $110.0m profits, 46.9c per share in earnings and a 12.5c dividend for the year to end-December 2025.
Alex Brooks, analyst at Canaccord Genuity Capital Markets, put out a Buy rating on the group’s shares, with an unchanged Target Price of 600p.
His estimates suggest $1,050m sales for 2024, with $76.0m of profits and 34.0c per share in earnings, with an 11c dividend.
For this year he estimates $1,171.4m revenues, $112.2m profits, 50.0c earnings and a 12.0c dividend.
The 2026 year could see $1,271.5m in sales, $138.9m profits, 62.0c in earnings and a 14.0c dividend.
At Equity Development, its analysts Toby Thorrington and Andy Edmond have a 397p per share ‘fair value’ reflecting their estimate changes and compared against near-term peer group multiples.
They now look for end-December revenues of $1,047.6m ($929.1m), with pre-tax profits of $73.4m ($50.0m), while earnings of 30.4c (20.3c) easily cover the estimated dividend of 11.0c (10.0c) per share.
In My View
Having followed this group for decades I remain totally confident of the ability of its Management to steer the growth of the company to the best advantage seen.
Its shares were up to nearly £10 twelve years ago, before falling away to as low as 120p in September 2020, however, the highest they have touched in the last five years was 464p last August – which is a level that is more than possible to achieve over the next couple of years.
The shares are currently trading at just 304p, valuing the group at only £497m.
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