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High profile order shipments were a significant influence on H1’25 performance against the prior year – positive for OCTG, adverse for Subsea – driving overall profitability ahead y-o-y. Portfolio actions, including two acquisitions in higher margin, higher growth subsectors, will bring further benefit to future earnings. Hunting’s net cash position retains balance sheet optionality for its capital allocation policy which balances growth aspirations with shareholder returns. At group level, Hunting delivered revenue and EBITDA (100% owned operations) growth of 7% and 13% respectively in H1’25. A small gross margin increase (+40bp to 27.8%) was supplemented by good opex control – particularly in admin expenses, generating a 70bp uplift in EBIT margin from wholly owned operations. Strong working capital inflow performance boosted free cash flow significantly compared to the prior year which was applied to acquisitions, dividends and treasury share purchases leaving period end net cash at c. U$75m (down U$25m over H1). The interim dividend was the first to be declared under the updated capital allocation policy and, accordingly, was 13% above H1’24. Company outlook commentary points to “choppy markets” indicating some scope for variance against unchanged FY25 EBITDA guidance of U$135m-145m. Across most areas, however, order books provide reasonable coverage to the year end and we leave our projected EBITDA at U$130m, with subsequent years profitability unchanged. We increase our fair value to 400p per share – this is derived from EV/EBITDA benchmarking plus DCF analysis. A prospective yield on the dividend of 3.0% and expectation of it growing 13% annually, plus a new share buyback programme, should all offer support for the shares in our view.
Hunting PLC
Guidance reiterated, despite an uncertain market. We were concerned that Hunting might struggle to maintain its full year EBITDA guidance of $135-145m, given weakening oil & gas prices and the decline in the rig count in Q2. However, a particularly strong performance in OCTG, driven not just by the last tranche of the KOC order, but also by good demand in North America, as well as a material improvement in the profitability of Titan, helped the company deliver a c13% EBITDA margin in H1. Drivers of H2 profitability will be different. We expect significantly lower OCTG volumes in H2, given most of the KOC contract has now been delivered; however, this will likely be offset by improvements in Subsea and Advanced Manufacturing, both of which had a relatively weak H1. In addition, the acquisition of Flexible Engineered Solutions (FES), which did not contribute to H1, should add c1ppt to revenue at accretive margins. Risks remain. Management was open that there are still material risks for the balance of the year, although they remain very confident about the longer-term drivers for the business. There has been some deferral of major tenders (including the next tranche from KOC) because of high levels of global uncertainty and the actions of OPEC+. The resilience of the US market has helped offset these headwinds in H1, but there are no guarantees this will continue. Forecasts & valuation. Our FY25E EBITDA forecast is broadly unchanged, but we raise EPS by c11% for FY25E and FY26E, reflecting lower expected interest expense, tax rate and share count, thanks to the buyback. We raise our TP to 330p, or 10x CY26E PE / 5x EBITDA, which is a small discount to the international peer group.
Hunting has released its H1 2025 results. These reiterate the numbers reported in the July trading statement and guidance for the full year, with the business continuing to achieve growth and improve margins, generate cash, and support shareholder returns, including the new US$40m buyback. The bid pipeline remains strong, though we moderate our forecasts into the 2025 EBITDA guidance range to reflect a degree of uncertainty over the rest of 2025, in part due to the oil price environment.
Overall, a solid update, in line with guidance given at the pre-close trading update. Revenues came in at $529m (consensus $545m), up 7% yoy, EBITDA at $70.5m (cons. $66.5m, margin 13%) and adjusted EPS 19.6c (cons. 19c). H1 FCF was $66m, as expected and net cash at period end was in line with previous guidance at $79m. The H1 dividend has been increased 13% to 6.2c. The order book at end of H1 was $452m, down from the $509m at the start of the year, as large orders have converted to revenue. Capital allocation. The group spent $83m on two acquisitions in H1, of which the $65m acquisition of Flexible Engineered Solutions (FES) is the most significant. The integration is going to plan and the group is seeing emerging sales synergy opportunities. The company also continues to look for additional M&A opportunities. As previously announced, the company will commence a $40m share buyback, expected to complete over the next 12 months. Divisional detail. Growth was driven by OCTG (up 43%), thanks to the last tranche of the order with KOC and good growth in North America. EBITDA margins reached 19% (up 200bps). Titan revenues were down slightly, but profitability has improved, with the EBITDA margin more than doubling to 7%. Subsea (-25%) and Advanced Manufacturing (-14%) declined, mainly due to contract phasing and revenue recognition. Subsea margins fell to 13% (from 23%) due to lower sales volumes, while AM margins also fell from 9% to 5% due to lower volume and mix. Guidance reiterated, despite uncertainties and project deferrals. The Group's tender pipeline remains in excess of $1bn, with opportunities for new OCTG and Subsea being pursued. There has been some deferral of projects in the Middle East, but North American OCTG demand has been good. While there is a level of market uncertainty which may impact the group’s full-year outturn, guidance for EBITDA of $135-145m has been reiterated. We would not expect to see significant changes to current consensus (c$137m).
Hunting is hitting its marks strategically whilst also continuing to improve near term profitability. H1’25 contained operational progress, M&A execution and an updated capital allocation programme to include faster dividend growth and prospective share buybacks. Market conditions remain mixed, but Hunting’s focus on successfully executing its order book while also addressing underperforming business areas drove progress in H1. The indicated U$68m-70m expected EBITDA for the period represents a c.16% y-o-y uplift, including a c.80bp margin improvement. A return to profitability at Perforating Systems and progress with the EMEA restructuring are welcome developments. Strategically, the acquisition of FES boosts Hunting’s Subsea offering and, along with other corporate actions, is clearly aligned with the 2030 strategy. In addition to M&A activity, an updated capital allocation (including faster expected dividend growth at 13% pa and a proposed share buyback programme) caught the eye. This indicates confidence in the group’s cash generation credentials and a balanced approach to the application of funds. We have not adjusted our existing 347p per share fair value at this stage but will revisit modelling following the H1’25 results announcement next month. The current share price sits on a 13% discount to this metric and a 25% discount to the end FY24 NAV.
Hunting has released its H1 2025 trading update, reporting a strong period delivering EBITDA to support full year guidance, order book progress across its production lines, and an increased dividend growth target and new up to US$40m buyback.
A solid H1. Hunting has reported good trading for H1 overall, with EBITDA of c$68-70m, up 16% yoy. EBITDA margin was roughly 13%, compared to 12.2% in H1 24. The order book stands at $450m, marginally better than at Q1 ($439m), with a pipeline of $1.1bn. Total cash at the end of H1 stood at $79m, despite spending $69m on the acquisitions of FES and OOR in H1. Guidance reiterated. The company has reiterated guidance of $135-145m EBITDA for FY25. Total cash at year end is expected to be in the range of $65-75m. OCTG leads, Titan recovery. OCTG traded ahead of management expectations, with strong margins thanks to the final four shipments to KOC and strong bookings in North America. Titan returned to profitability in H1, despite some softening in the North American market. Subsea results are expected to be H2 weighted due to delivery timing, while Advanced Manufacturing was marginally behind plan. The restructuring of the EMEA segment is ongoing and is expected be completed by end Q3, generating c$10m in annualised cost savings. Buyback announced, dividend growth raised. As part of its review of capital allocation policy, the company has announced a share buyback of $40m, to start after the H1 results in August. It has also announced that it will increase its rate of dividend growth slightly, from 10% to 13% per year. The Board has reaffirmed that it intends to invest in organic capex broadly in line with depreciation until the end of the decade and will also continue to pursue bolt-on acquisition opportunities.
Hunting has announced the acquisition of UK-based subsea company Flexible Engineered Solutions for £50m cash.
Hunting has announced the acquisition of Flexible Engineered Solutions (FES), a UK-based company that provides fluid transfer solutions to the offshore oil & gas and renewable energy industries, for £50m ($67m) on a cash free/debt free basis. The business will be integrated into Hunting’s Subsea product line. It strengthens Hunting’s offshore/subsea revenue profile and increases product coverage in the deepwater/ultra deepwater segment. FES is currently owned by members of its management team, who will remain with the business for at least 12 months. The price paid is the equivalent of 1.6x 2024 sales and 7.5x EBITDA. The EBITDA multiple drops to about 6.3x based on expected 2025 EBITDA of roughly £8m. The deal is expected to be accretive to Hunting’s EBITDA margins, and to earnings in the first full year of ownership. The deal will be funded out of Hunting’s cash resources and the company will still have $40m of cash post-completion. It is reviewing its capital allocation priorities and will confirm intentions in the coming weeks, which raises the possibility that it may return some excess capital to shareholders, if it is unable to find any further attractive acquisition targets.
Oil & gas market weakness weighs on sentiment. In recent months, much of the optimism we saw late last year has unfortunately evaporated. The oil price is close to its lowest level since 2021, and while natural gas prices have recovered compared to 2024, they are nowhere near the levels forecasters such as the EIA had expected. The US rig count has remained stubbornly flat. Other industry players are now flagging that they expect upstream investment to decline this year, particularly in the US market. Against this backdrop, we think it makes sense to take a more cautious view on growth for Hunting, especially OCTG and Perforating Systems divisions; accordingly, we reduce or revenue growth forecast from 5.7% to 1% for FY25E. Advanced Manufacturing may also slow. We also take a more cautious approach to the Advanced Manufacturing division, which has grown revenues strongly in recent years. We now expect this division to grow c3% in FY25E, from 12%, as a result of weakness in both its oil & gas and non-oil & gas customers (predominantly aerospace), as the impact of US tariffs begins to weigh on sentiment. Reducing estimates. We cut our adjusted EBITDA forecasts by c7-8% for both FY25E and FY26E, which feeds through to 11% and 13% cuts to EPS, respectively. This puts us at the bottom end of the $135-145m company guidance range for FY25 EBITDA and c4% below consensus of $140m. Valuation. On our revised estimates, Hunting trades on 8.9x FY26E P/E and 3.4x EBITDA, which is a discount to the peer group. We think it will be difficult for the stock to re-rate until there is more positive top-line momentum, which seems unlikely for now. Our new TP of 270p implies a valuation of 9.4x P/E and 3.6x EBITDA for FY26E.
Hunting’s AGM update says that FY25 has started well and our expectation of growth in all 3 estimate years is unchanged. Its share price has been hit by wider market sentiment; its valuation looks attractive against a range of comparator benchmarks. After strong group progress in FY24 (with revenues and EBITDA norm ahead by 13% and 23% y-o-y respectively). Further revenue growth and margin expansion up c. 200bp to 14% in Q1 has driven a 34% EBITDA uplift (to U$38.7m). After the FY24 results announcement, we re-balanced estimates (lowering FY25E EBITDA and raising FY26E by similar mid, single-digit percentages) chiefly to reflect expected phasing of the next larger OCTG orders. While remaining vigilant to potential secondary effects, management is continuing to focus on executing its 2030 strategy, targeting a significant uplift in group profitability over this period. After a good start to the year, Hunting’s share price is now down c.11% YTD versus +1% for the FTSE All-Share Index. As a result the company is trading on discounts to peers, our central DCF analysis, and the company’s last published NAV. Using a blended current year peer rating and DCF approach suggests a fair value of 347p per share.
Hunting has issued a Q1 trading update ahead of its AGM later today. This reports an in-line EBITDA performance, including an enhanced margin, alongside consumption of working capital as the company continues to execute work in its order book.
Good Q1 EBITDA: The group has traded in line with expectations across all product areas in Q1, with EBITDA of $38.7m and an EBITDA margin of 14% (compared to $28.9m and 12% margin in Q1 2024). OCTG had another good quarter (helped by the KOC orders) and Perforating Systems (Titan) is benefitting from the actions taken to restructure the business. Subsea was solid. The group has seen a reduction in cash balances from $105m at the start of the year to $58m, as is usual in Q1, due to maturity of certain bank acceptance drafts and the purchase of $3.4m shares for the EBT. The restructuring of EMEA continues with $10m annualised cost savings targeted. The order book is $439m, down from $507m at the start of the year. This reflects the reduction in OCTG as expected, offset by the new $38m orders in Subsea. No comment on FY guidance: Previous guidance for full-year EBITDA of $135-145m was not explicitly reiterated in the statement. However, we understand from management that this guidance has not been withdrawn and we think the company will see how things play out through Q2 before revisiting it at the half-year. The recent decline in the oil price is obviously increasing uncertainty and customers are moving more slowly as a result. For now, however, we would not expect significant changes to full-year consensus forecasts (currently $140m EBITDA, according to Visible Alpha). Minimal tariff impact: Management has assessed the potential impact of US tariffs on the business and expects minimal impact for Hunting Titan, the North American and Subsea businesses and no impact in EMEA or APAC. M&A ongoing: The group continues to assess a number of bolt-on opportunities, especially in the subsea and intelligent well completion business. Clearly the current environment increases uncertainty, but management believes Hunting is a good buyer with a strong balance sheet and is therefore in a good position.
Hunting has announced several new contract wins in its Subsea segment. In the Enpro business, Hunting has won c.US$23m of contracts across two clients for use of its technology on North Sea decommissioning projects, with the potential for further awards in 2026. In the Spring business, Hunting has won a c.US$15m titanium stress joints contract in the Gulf of Mexico, with a new client for this product line.
Hunting recently released its 2024 results, confirming another year of EBITDA progress, and a significant improvement in cash flow performance. We have now updated our model, adjusting 2025 and publishing numbers for 2026.
Titan to turn: Hunting reiterated existing guidance for FY25 EBITDA of $135-145m, up from $126m in FY24. The bulk of the increase is expected to come from recovery in Titan, which barely made a profit in 2024 but could contribute c$20m in 2025. The scale of the recovery may be a surprise, but with natural gas prices at their highest levels since 2022 and the US rig count picking up, the outlook looks much improved. Cost saving measures worth roughly $6-7m implemented in late 2024 should also contribute. OCTG and Subsea could provide additional momentum: OCTG and Subsea were key to Hunting’s growth in 2024. While both markets are still healthy, significant contracts will end in the coming months (most notably KOC). This means that, absent any additional wins, EBITDA will be flat to down in these divisions. Our forecasts assume no significant wins, but there is a good pipeline of opportunities that could convert in the coming months, providing additional growth momentum. Strong balance sheet provides M&A firepower: We expect Hunting to generate FCF of $76m in FY25E, taking net cash balances up to around $145m. We expect it to redeploy this capital for acquisitions, which should further boost growth. Management is actively reviewing several opportunities and prices remain attractive. The focus is expected to be on the higher-margin parts of the business. Estimate changes and valuation: We reduce FY25E/FY26E EPS by c6% and 9% respectively, mostly due to adjustments below EBITDA. Our price target moves to 390p, reflecting the peer-group de-rating and lower target multiples.
Hunting has released its full year 2024 results, confirming another year of revenue and EBITDA margin progress and a significantly better cash performance, alongside a continued outlook for further growth in 2025.
A solid update: Overall, this was a solid update from Hunting, very much in line with guidance given at the pre-close trading update. Guidance has been reiterated, so we would not expect to see significant changes to consensus EBITDA (currently $140m, INVe $146m). FY24 results: Revenues came in at $1049m (consensus $1047m), EBITDA $126.3m (consensus $125m) and adjusted EPS 31.4c (cons. 33c, Investec 31.1c). (Note that some analysts had updated for new guidance on interest expense, but not all, which may explain the difference to consensus). FY FCF was $139.7m, as expected and net cash at year end was in line with guidance at $104.7m. The dividend has been increased 15% to 11.5c. The order book at year end was $508.6m, down from the H1 record high of $700m, as large orders have started to convert to revenue. OCTG the main driver of growth: OCTG revenues increased 17%, driven by the significant orders from the Kuwait Oil Company, while EBITDA almost doubled to $80m. The order book at year end stood at $250m, down from $411 at the half year. Hunting Titan write-down: As expected, the group took a write-down of $109.1m relating to the carrying value of Titan. Revenues in the Perforating Systems division (predominantly Hunting Titan) declined 9% in the year, with EBITDA of just $1.4m. Guidance and outlook for FY25: Previous guidance for EBITDA of c.$135-145m has been reiterated, with EBITDA to FCF conversion of 50%. The group expects to see steady growth in revenue in 2025, with acceleration in activity in H2 and into 2026. The new US administration is indicating strong support for oil & gas, but the industry is likely to remain disciplined. On tariffs, the group does not expect to see a significant impact, but disruption across international markets may lead to ‘unforeseen challenges.’
Hunting recently issued a trading statement, confirming guidance for 2024 and providing new guidance for 2025, alongside announcing a restructuring of its business in the UK and Europe. We have now incorporated this into our numbers and today update our forecasts, as Hunting continues to pursue new work in 2025 in its OCTG and Subsea segments and to right-size costs in Perforating Systems, Europe, and G&A.
2024 outturn in line with expectations: FY24 EBITDA is expected to be c$123-126m (INVe $123.7m), as previously guided, with revenues $1,040-1,050m, implying an EBITDA margin of around 12%, up from 11% in FY23. Strong Q4 cash generation means that year-end total cash is expected to be around $100-105m, higher than previously guided (we had forecast $68.5m). FY24 FCF was 110% of EBITDA, well above expectations. Order book down from a record high: The order book at year end is expected to be c$500m, down from the record high of $700m at H1 as the significant orders taken in H1 start to be converted to revenue. Trading in Q4: The statement notes that market conditions, while still volatile, have stabilised in Q4, with gas prices recovering to $4 per mmBtu and the new US administration supportive of oil & gas development. The OCTG and Subsea product groups delivered margins well in excess of the 15% target given at the 2023 CMD (this was already the case in H1). Perforating Systems ended 2024 below 2023, with an EBITDA margin in the low single-digit range. As noted in October, the carrying values in Hunting Titan continue to be assessed for impairment and management expect to book something in the 2024 accounts. Initial guidance for 2025: Initial guidance for FY25 is for EBITDA of around $135-145m (Visible Alpha consensus $149m, INVe $155m), with Y/E cash expected to be around $134-145m (excluding any M&A etc). The company will provide more granular detail at the FY24 results, but we expect this guidance assumes at least some recovery in Perforating Systems profitability. Restructuring of EMEA: Separately, the company has also announced a restructuring of the EMEA segment, principally due to a weak outlook for the North Sea oil & gas industry. Total savings are expected to be around $10m.
Hunting has reaffirmed that FY24 EBITDA will be in line with October’s revised US$123m-126m guidance, the midpoint of which represents c.22% y-o-y progress. As previously noted, the OCTG and Subsea product groups have delivered strong performances while Hunting Titan/Perforating Systems (PS) has had to contend with depressed North American onshore activity levels. Management has again raised year end net cash guidance (and for the third time during FY24) to US$100m-105m driven by successful shipment delivery and cash collection schedules we believe. Together with US$300m recently updated bank finance facilities, this places Hunting in a strong position to progress its 2030 strategy. Compared to our last update, we note that the group net cash position and stronger US dollar (now £/US$1.21 versus 1.31 previously) are both more favourable inputs. For now, we believe that Hunting’s current share price is discounting levels of profitability significantly lower than the group is currently achieving. We retain our fair value / share at 397p.
Hunting has released its Q3 trading statement, reporting ongoing strong performance and good receivables collection from its OCTG, Advanced Manufacturing, and Subsea activities, but with further slowdown in Perforating Systems. This has driven a downgrade to 2024 EBITDA guidance, but an upgrade to the expected end 2024 cash position.
Hunting’s Q3 update highlights positive developments with OCTG shipments and cash flow/funding, but Hunting Titan/Perforating Systems (PS) has not seen a trading improvement in H2 to date. Consequently, we have reduced estimates to reflect this, although we continue to expect the company to report good EBITDA progress this year and next. H1 trading patterns continue into Q3. The first OCTG shipments to KOC have completed successfully. Allowing for this, the group order book is holding up well (at U$652m versus c.U$700m in H124) with other Product Groups – PS excepted – substantially on track with expectations. Our Group EBITDA estimates are now c.7% lower for FY24 and c.12% down in the following two years. Revised FY24 guidance to U$123m-126m (from U$134m-138m) infers a strong Q4E supported by KOC shipments. Post revisions, our expectations are for EBITDA to increase by c.21% yoy this year and next. The trading shortfall against prior guidance has not been at the expense of cash flow generation. Hunting ended Q3 with c.U$5m net cash (inferring c.U$15m net inflow in the quarter). Moreover, revised guidance is for an expected U$60m-70m year end net cash position. This is c.U$30m better than previously which we believe reflects greater clarity on the payment profile for OCTG shipments. We are happy to retain our US$180m long term EBITDA as a DCF input. Hunting is trading in line with its peer group on current year earnings, but at a discount to our DCF modelling. Averaging these approaches gives a 397p/share fair value.
Solid Q3 (excluding Titan): Hunting has generated c$87m EBITDA year to date, implying Q3 EBITDA of c$27m, up slightly yoy. The YTD EBITDA margin is running at c12%, in line with H1. This is despite ongoing weakness in Titan, which was EBITDA breakeven in the quarter. The Q3 order book stood at $652m, down c$48m from H1. The $60m organic oil recovery order was recognised in Q3, offset by execution of major orders in OCTG and Subsea. The group had $4.6m cash at the end of Q3 (vs $9.7m borrowings at H1) – this had risen to $31m by 11th October due to collection of KOC receivables. Hunting Titan struggles: Hunting Titan/Perforating Systems has unfortunately seen no recovery in recent weeks. US onshore demand remains depressed, and this is now likely to continue for some time given the uncertainty created by the US elections and weakening in gas prices through October. As a result, this division is unlikely to see much pickup before 2025, despite the cost actions taken earlier in the year. Further cost-cutting is being planned with management changes having been implemented. Other areas trading in line: OCTG is performing well, with first revenues recognised on the KOC order in the quarter. Subsea is performing in line with expectations, with good progress on its titanium stress joint orders for Exxon Mobil Guyana. Advanced Manufacturing is also trading in line. Estimate changes: Due to the weakness in Titan, some deferral of orders to 2025 and a generally softer trading environment, management has reduced EBITDA guidance to $123-126m. We reduce EBITDA to $123.7m (9%) for FY24E and to $155.1m (-10%) for FY25E. Our EPS estimates are reduced to 31c (-12%) and 44.5c (-17%). We raise our forecast for year-end cash (excluding leases and shareholder loan) to $68.5m. We reduce our PT to 565p from 665p, reflecting our lower estimates.
One year on from Hunting’s 2030 Strategy launch some good progress has been made towards these long-term targets in mixed market conditions. H124 EBITDA came in at U$60.3m (+c.23% y-o-y), in line with pre-close commentary. Successful order execution in International and Subsea markets more than offset largely weaker North American oil and gas demand. An elevated order book position, re-affirmed EBITDA and year-end net cash guidance (both raised at the end of H1), together with a 10% interim DPS uplift, all project a confident outlook. Strong H124 EBITDA increases from Subsea, OCTG and Advanced Manufacturing operations were partly offset by a lower Perforating Systems’ contribution, but good y-o-y and sequential progress was achieved by the Group overall, sustaining recent trends. Hunting’s c. U$700m order book position at the end of June supports our unchanged core profit estimates, albeit on slightly lower FY24 revenues factoring in current Perforating Systems’ run rates. We now include JV/Associates in EBITDA, consistent with the revised company presentation, and have trimmed the current year contribution here largely to reflect the India JV start-up position. Hunting’s c.40% YTD share price uplift was effectively attained in May - including a boost from OCTG orders at that time – and has largely traded in the 400p-460p range subsequently. Having significantly outperformed its peer group, valuation metrics are now more aligned with these peers on an FY25 P/E basis but remain on a c.20% EV/EBITDA discount. Successful delivery of the KOC OCTG orders over the next nine months is an important near-term focus. Ongoing material order success and improving visibility at higher levels of profitability in the medium term and beyond will be the key drivers of future share price performance and we leave our existing fair value of 436p / share unchanged for now.
One year on from Hunting’s 2030 Strategy launch some good progress has been made towards these long-term targets in mixed market conditions. H124 EBITDA came in at U$60.3m (+c.23% y-o-y), in line with pre-close commentary. Successful order execution in International and Subsea markets more than offset largely weaker North American oil and gas demand. An elevated order book position, re-affirmed EBITDA and year-end net cash guidance (both raised at the end of H1), together with a 10% interim DPS uplift, all project a confident outlook. Strong H124 EBITDA increases from Subsea, OCTG and Advanced Manufacturing operations were partly offset by a lower Perforating Systems’ contribution, but good y-o-y and sequential progress was achieved by the Group overall, sustaining recent trends. Hunting’s c. U$700m order book position at the end of June supports our unchanged core profit estimates, albeit on slightly lower FY24 revenues factoring in current Perforating Systems’ run rates. We now include JV/Associates in EBITDA, consistent with the revised company presentation, and have trimmed the current year contribution here largely to reflect the India JV start-up position. The c.40% YTD share price uplift was effectively attained in May - including a boost from OCTG orders at that time – and has largely traded in the 400p-460p range subsequently. Having significantly outperformed its peer group, valuation metrics are now more aligned with these peers on an FY25 P/E basis but remain on a c.20% EV/EBITDA discount. Successful delivery of the KOC OCTG orders over the next nine months is an important near-term focus. Ongoing material order success and improving visibility at higher levels of profitability in the medium term and beyond will be the key drivers of future share price performance and we leave our existing fair value of 436p / share unchanged for now.
H1 performance broadly in line. H1 revenue of $493.8m and EBITDA of $60.3m were broadly as expected (Visible Alpha consensus revenue $497m and EBITDA $61.2m respectively). Revenues grew 3%, helped by strong demand in OCTG , Subsea and Advanced Manufacturing, but Perforating Systems/Titan remains subdued. EBITDA margins improved c200bps to 12.2%, with significant improvement in OCTG and Subsea margins. The order book grew 32% to a record $700m, helped by $231m of OCTG orders secured with the Kuwait Oil Company (KOC). H1 cash improvement. H1 free cash flow was $2.8m, compared to $-59.5m in H1 23. Working capital outflows were significantly lower at $40m, compared to $86m last year. Working capital management has improved, with inventory days reduced from 175 to 168 and receivable days from 89 to 82 since the start of the year. We forecast the group to generate $67.5m FCF for 2024E, a significant improvement on 2023’s $-0.5m. Perforating Systems a weak spot. Perforating Systems saw revenues decline by c6% and EBITDA fell c77%. Volatile gas prices and a falling rig count meant US onshore demand remained weak. However, management is confident of some stabilisation in H2, with demand helped by firmer gas prices in 2025. Profits will be helped by restructuring, which should yield $6-7m of annualised benefits, of which c$3m should come this year. Guidance reiterated, minor estimate changes. The company has reiterated its guidance for EBITDA of $134-138m, with good growth in OCTG helped by the KOC order in H2 offsetting weakness in Perforating Systems. The longer-term outlook is also unchanged. We have made only minor changes to our headline estimates to reflect division mix change.
International and Subsea markets continue to drive Hunting forward. A pre-close update indicated H124 EBITDA of c.US$60m (up US$10m+ year-on-year) plus a c.$700m period end group order book (up c.US$135m since December). There have been headwinds in certain other markets, but overall group momentum has again led to slightly firmer guidance for the current year together with an expectation of good progress to follow in FY25. The company was modestly geared at the period end. A c. 200bp increase in EBITDA margin and group revenue c. 3% higher y-o-y resulted in a strong overall increase in H124 profitability. Subsea had a notably stronger H1 trading period supported by shipments of titanium stress joints for offshore Guyana projects; OCTG continued to trade well and it secured significant new orders in the first half. Weaker onshore North American drilling activity did impact Perforating Systems’ performance and three site consolidation actions are being taken. Hunting ended H1 in a modest net debt position of c. US$10m (company basis) and has now guided to a more significant expected net cash balance between US$30m-40m by the year end. At the end of H1, the group order book position increased to c. US$700m, boosted by significant new OCTG work. This has settled back slightly from an early June peak following the second OCTG announcement but still represented a marked uplift compared to the beginning of the year. The H124 performance together with forward visibility in several areas into H125, has informed firmer guidance for current year EBITDA (to a mid-point of US$136m, up US$4m) and an expected outcome range for FY25 (mid-point c. US$167m). On conventional metrics the company is effectively trading on value (rather than growth) level multiples in FY25 and FY26. Our updated DCF and company fair value at 436p/share is unchanged and modestly above the current share price.
Hunting has released a trading update ahead of its H1 results at the end of August. This reports a strong trading period, driven by OCTG, Subsea, and Advanced Manufacturing, with an increase in EBITDA guidance for the full year.
Record OCTG orders highlight competitive edge – The OCTG business is the key driver of outperformance and represents the core growth area for Hunting. The company has invested in the business, focusing on its platform and developing a competitive edge. Its key strategic partnerships have paved the way for large contract wins, with a record $145m order with Kuwait Oil Company supporting a near record high order book of $700m. Diversified portfolio to leverage into global energy growth – The company has made substantial progress in the non-Hunting Titan segments, including OCTG, Advanced Manufacturing, and Subsea product groups. It has a diverse product offering that can exploit all areas of energy growth as well as growing its non-oil and gas markets. Ultimately, this provides multiple avenues for revenue and EBITDA growth, which can lessen cyclicality and volatility within the business. Robust balance sheet provides M&A firepower – Beyond 2024, we expect the company to build its cash position considerably, generating strong FCF, which can be used for additional shareholder returns as well as strengthening its capacity for M&A, where it has a strong track record. Blue sky scenario: achieving Hunting 2030 targets = £10+ valuation – If it can achieve its “Hunting 2030” goals of c.$2bn of revenue and margins above 15%, we see significant potential upside and calculate a blue-sky valuation of 1000p/share. If the company were to accelerate its expansion and achieve its goals two years ahead of schedule, this would increase to 1225p/share. Valuation – We update forecasts for new guidance and roll our valuation forward to FY25E, which sees our TP increase to 665p.
Hunting has announced a further large OCTG award – an US$86m order from Kuwait Oil Company. This comes after the US$145m OCTG award already received from Kuwait Oil Company in mid-May and, alongside some additional Subsea and Advanced Manufacturing wins, takes total order book to c.US$751m (from c.US$665m in mid-May).
Hunting has confirmed it has secured its second OCTG order with the Kuwait Oil Company (KOC) for c.$86m (following the first order of c.$145m announced in May). This contract has helped boost its order book to record levels of c.$751m. The contract win and relationship with KOC supports the company’s growth ambitions and the ‘Hunting 2030’ strategy. The order further demonstrates the advantages of Hunting’s broad portfolio and multiple avenues for long term growth, as the company continues to benefit from the acceleration in international and offshore activity. Another significant OCTG order supports an improving outlook for 2025 and 2026 Hunting has announced a second OCTG order of c.$86m with the KOC through its distributer in Kuwait. The OCTG casing and connections related to this order are similar to those announced in the c.$145m order which comprised of a large quantity of premium OCTG casing, to be supplied by Hunting via its end-to-end integrated OCTG supply chain in Asia. The casing will be threaded with Hunting’s proprietary SEAL-LOCK premium connection technology. With this order, Hunting has now been awarded contracts with a total value of $231 million from the KOC for OCTG casing and its premium connections. This second order continues to strengthen Hunting’s relationship with KOC and supports key initiatives in-country by KOC to increase annual hydrocarbon production, in addition to further developing natural gas output. Hunting previously highlighted that revenue is expected to be recognised from late Q4 24 into FY25 for the first order and given the size of the order, management now expects to be towards the top end of FY24 guidance of $125-135m of EBITDA. As previously disclosed, given the timing of revenue recognition and working capital movements, more detailed guidance will be provided for FY24 and FY25 at interim results on July 9th. We leave our forecasts unchanged as we await further guidance on revenue recognition and working capital requirements. Hunting has also confirmed that the order, alongside notable awards in Subsea and Advanced Manufacturing, has increased the order book to record levels of c.$751m and provides confidence and line of sight for revenue visibility into 2025 and 2026, supporting the strong outlook/backdrop for the Company as international and offshore activity continues to accelerate. The order will be funded from the groups existing $150m Asset Based Lending (ABL) facility
Hunting has announced a significant new US$145m OCTG contract win in the Middle East, boosting order book to record levels and seeing guidance now expected to be towards the top of the existing range.
Hunting has received a record US$145m OCTG order with shipments to the Kuwait Oil Company expected to start toward the end of 2024. As a result, following an in-line Q1 update, EBITDA guidance has now firmed towards the upper end of the company’s existing US$125m-135m range. We have raised our current year EBITDA estimate to US$131m (+c.7%) and by c.14% for FY25 due to this new business win. This contract follows significant OCTG (Oil Country Tubular Goods) orders in H2'22 (US$80m+ offshore China for CNOOC) and H223 (US$91m Rajasthan for Cairn Oil & Gas, Vedanta Ltd), and underscores Hunting’s strong position and momentum in international markets. Following our upgrades, Hunting is currently trading on discounts of c.22% and c.35% on conventional P/E and EV/EBITDA metrics versus its peer group over our estimate horizon. Applying the peer group average P/E to our unchanged FY26 earnings generates a share price in line with our DCF-derived valuation (slightly higher at 434p, using US$180m as a long-term sustainable EBITDA level) leaving our existing 436p per share fair value unchanged at this stage.
Hunting has secured a record $145m OCTG order with Kuwait Oil Company (KOC), boosting its order book to record levels of c.$665m. Given the quantum of the order, management now expects FY24 EBITDA to be towards the top end of guidance ($125-135m). The contract win supports the company’s growth ambitions and the ‘Hunting 2030’ strategy to deliver revenue and profit growth through OCTG, and in geographies such as the Middle East. The order further demonstrates the advantages of Hunting’s broad portfolio and multiple avenues for long-term growth, as well as Hunting’s competitive advantage in the OCTG sector across multiple target geographies. Record OCTG (Oil Country Tubular Goods) contract boosts a record order book Hunting has announced a record $145m order with KOC through its distributor in Kuwait. The order comprises a large quantity of premium OCTG casing, to be supplied by Hunting via its end-to-end integrated OCTG supply chain in Asia. The casing will be threaded with Hunting’s proprietary SEAL-LOCK premium connection technology, the same used across its facilities in Asia Pacific. Hunting has a leading-edge manufacturing capability across Asia and the Middle East. The company has invested heavily since 2019 to provide a platform to establish a leading strategic supply chain in the region, manufacturing capability, and connection technology to support its growth ambitions in the key regions. Revenue is expected to be recognised from late Q4 24 into FY25. Given the timing of revenue recognition and working capital movements, more detailed guidance will be provided at interim results in July. Importantly, previous guidance on its working capital efficiency target remains unchanged at 40% and 35% of annualised revenues in 2024 and 2025, respectively. We leave our forecasts unchanged as we await the further guidance. The order will be funded from the group’s existing $150m Asset Based Lending (ABL) facility and the company highlights that accelerated receivable solutions and bank acceptance bonds are also being put in place to shorten the overall cash conversion cycle.
Hunting has released its Q1 trading statement, reporting a strong period for OCTG and Subsea, steady growth in Advanced Manufacturing, and a softening in Perforating Systems.
Commentary and financial metrics in Hunting’s AGM/Q1 update confirm that the company has progressed in line with its FY24 targets thus far in year-to-date trading. Q124 EBITDA was well ahead year-on-year. This represents a good step towards the flagged US$125m-135m range for the year, with ongoing momentum in the strongest market segments. Group revenue has continued to grow well, being up c.16% year-on-year in Q1 and c.7% ahead compared to Q423, a strong quarterly close to FY23. Shipments against previously disclosed large contracts in the OCTG and Subsea product groups and broad business development in Advanced Manufacturing have been the primary drivers in generally firm underlying markets. While the group order book has nudged c. US$21m lower than the year end position as larger orders are worked through, US$544m on hand at the end of March still represents a strong position in a historic context. We are also aligned with management expectations for inventory positions unwinding over the remainder of the year. Updating our P/E and DCF methodology for market movements (including £/US$1.25) now yields a blended fair value for Hunting of 436p / share: up from 407p and over 20% above the current share price.
Hunting has confirmed a positive start to the year, with Q1 marginally ahead of management’s expectations, driven by strong OCTG and Subsea performances. US onshore has had a soft quarter but is likely to be offset by international drilling activity in H2. Importantly, the company reiterated FY24 guidance of $125-135m EBITDA and margins of 1213%. A c.50% EBITDA to FCF conversion is still expected in FY24 as working capital unwinds through the year. FY24 EBITDA guidance reiterated and working capital unwind to deliver FCF this year Q1 results are marginally ahead of expectations, with revenue of $244.9m and EBITDA of $28.9m (c.12% margin); the product mix and better pricing combined with stronger utilisation resulted in improved performance. The sales order book remains healthy at c.$544m and the company reiterates its FY24 EBITDA guidance of c.$125-135m. Hunting finished the period with net debt at $33.6m, up from $0.8m at FY23, driven by a working capital increase in the period with some forward purchasing of raw materials and inventory build. Note there are some seasonal factors weighted to a Q1 draw on cash and working capital; last year there was a Q1 draw of c.$85m of cash and so we highlight an improvement YoY, despite strong growth in the period. Hunting remains confident of delivering a reduction in inventory through the year which will release cash and help deliver its EBITDA to Free Cash Flow conversion target of c.50%. Strong international and offshore activity offsetting a soft US onshore market OCTG and Subsea product groups delivered ahead of management’s expectations, as offshore and international activity continues to be strong. Tender activity for OCTG in the Middle East remains positive, supporting projected revenue growth in the short to medium term. Additionally, strong activity in Guyana and Brazil provides a positive market backdrop for OCTG accessories and the Subsea business. Perforating Systems has reported a slower Q1 given soft US natural gas pricing. However, activity levels are projected to improve in H2 with new LNG capacity online, which should support higher exports and give a potential boost to gas pricing. The Titan business continues to target increasing international sales as market activity in South America and the Middle East improve.
Hunting delivered EBITDA of US$103m, ahead of revised guidance and the inferred year-end expectation, representing a 98% y-o-y uplift (and 11.1% margin, +380bp). Major contract awards boosted Subsea and OCTG activities in particular, but top line progress was also accompanied by good cost control to deliver the full year outturn. A record year-end order book position leaves the company well-placed to deliver further progress in FY24, where guidance is unchanged. At the headline level, Hunting delivered group revenue growth of 28% and margin progress (ie gross +90bp to 24.5% and EBITDA +390bp to 11.1%), feeding into a fivefold increase in pre-tax profit with EPS up over four times in FY23. The full year dividend rose by 11% to 10c per share, covered twice by earnings. Against our selected peer group average, Hunting’s P/E and EV/EBITDA multiples sit on discounts of 25-30% and 20-25% respectively. Taking a simple average of our P/E and DCF based analyses gives an unchanged fair value per share of 407p.
Hunting has released its full year 2023 results. These were guided to in the trading statement in January, though EBITDA has now come out ahead of this, and overall the results demonstrate a year of very significant growth.
FY23 ahead of expectations - FY23 revenue of $929m, is up 19% YOY, with strong international global oil and gas activity offsetting the slowdown in the North American onshore market. Additionally, FY23 adj. EBITDA of $103m, is up an impressive 98% and ahead of previous guidance ($96-100m) driven by higher utilisation, improved pricing and product mix, generating an 11% margin (up from 7% in FY22). The balance sheet remains robust, with strong EBITDA conversion and cash generation in H2, with a cash inflow of $50.9m demonstrating the potential of the portfolio. FY24 Guidance reiterated - The company has reiterated FY24 EBITDA guidance of $125-135m, underpinned by the record order book and international activity. The company is expecting to benefit from further international activity with sales into South America being strong as drilling in Guyana and Brazil increases and on improved momentum in the Middle East and Asia. Delivering on Hunting 2030 strategy - Hunting has made a strong start in its delivery of the Hunting 2030 strategy, with improving margins and higher utilisation and improved shareholder returns in the period. The company has built solid foundations to deliver further growth, with a more diverse revenue mix and higher visibility on earnings. It remains on track to hit its medium-term EBITDA margin target of 14-16% by 2025. Valuation - We update our numbers for today’s results and note that the model tweaks and a marginal boost to cash conversion and the net cash position increases our TP to 465p. We reiterate our Buy recommendation.
Good revenue progress, a strong EBITDA uplift (and margin expansion), an ungeared year-end balance sheet and the in-year launch of an ambitious 2030 strategy represents a healthy FY23 scorecard for Hunting. Furthermore, additional order book growth and unchanged management guidance positions the company well to achieve further progress. A number of large contract awards announced at the end of FY22 and as FY23 progressed contributed meaningfully to the FY23 outturn. In addition, Hunting ended the year with a record US$575m order book (versus US$473m a year earlier). Hunting’s balance sheet is confirmed to be broadly funds neutral at the end of FY23: indicative, we believe, of good cash collection in H2/Q4 on an elevated revenue base. Together with further anticipated earnings progress in FY24 and FY25 feeding into positive cash generation, this provides a strong platform for prospective M&A activity and potential further earnings upside. ED estimates are unchanged at this stage, as are previously identified peer group discounts of c. 20-30%. Our fair value is also unchanged in US dollar terms, but after adjusting for FX changes now translates to 407p / share - still almost 50% higher than current levels.
2023 demonstrates a solid period of delivery for the company, with strong international global oil and gas activity offsetting the slow-down in the North American onshore market. The company continues to demonstrate that all its product groups can contribute to portfolio growth, and a route back to 15%+ EBITDA margins, as it continues to reduce cyclicality and volatility, underpinned by a record order book. International activity drives momentum Trading in Q4 has been reasonably strong as activity across the global oil and gas industry continues to accelerate. Robust performance across the group, driven by international markets, offsets a minor slowdown in the North American onshore market. However, Titan remains resilient, achieving stable results in the year as margins remained solid, given the product mix and international order, which demonstrates the strength of the product offering. Hunting has confirmed EBITDA is in line with its FY Guidance ($96-100m) and almost double the previous year with expected revenue of $925-930m. Importantly the order book remains strong and provides line of sight on future revenues with large contracts wins across its divisions internationally, and the order book stands at a record level of c.$575m (up c.21% YoY). An EBITDA margin of c.10.5% was achieved in the year, up from 7% in 2022, and on-track to meet its 2025 target of 14-16%. The company finished the period with net debt expected to be broadly c.$0m ($68m at Q3), benefitting from an inventory unwind and successful delivery of its receivables programme delivering strong cash generation in Q4. FY24 Guidance reiterated – another year of EBITDA growth and expansion The company has reiterated FY24 EBITDA guidance of $125-135m, underpinned by the record order book and international activity. The company is expecting to benefit from further international activity, with sales into South America being strong as drilling in Guyana and Brazil increases and momentum improves in the Middle East and Asia. The overall share of non-oil and gas revenue is expected to increase to c.8% of total revenue (6.5% in FY22) demonstrating the growing diversity of the portfolio.
Hunting has released its full year 2023 trading statement, reiterating guidance of US$96-100m of 2023 EBITDA (10.5% margin) and a flat end 2023 net debt position, driven by a strong performance from its OCTG and Subsea business units, and backed up by a steady performance from Perforating Systems.
With positive trading momentum and order book development continuing, Hunting has outlined a clear growth strategy for the remainder of this decade. This is predicated upon further progress in traditional markets amplified by deeper penetration of newer adjacent ones and other non-oil & gas industries. In share price terms, only partial credit has been given for an improving financial performance. Yet, at current levels it is effectively discounting no growth beyond a return to pre-Covid levels of profitability - in stark contrast with management’s ambition. Management has outlined a clear strategy to grow significantly and, in the process, diversify to derive c. 25% of group revenues from non-oil and gas sectors – including Energy Transition sub-sectors - by 2030. Explicit short, medium- and long-term targets (including revenue CAGRs of c. 16% to FY25 and c. 13% organic to FY30, EBITDA margin improvements and M&A potential also) are founded on strong existing market positions, similarities with carbon capture and geothermal sector requirements and demonstrated capabilities in certain other non-oil & gas sectors already. We initiate coverage with a fair value of 421p per share (c.42% above current levels). Earnings growth is the primary attraction for investors currently in our opinion, although dividend growth prospects are also good. Lastly, we note that Hunting’s share price is currently sitting on a c. 30% discount to its H123 NAV per share.
Hunting’s trading update demonstrates continued momentum across all trading groups, with another major order for Hunting’s Titanium stress joints. The outlook for 2023 continues to be positive, with 2024 revenue visibility also improving due to the orders secured this year. The company continues to demonstrate that it has multiple avenues for growth in its portfolio and a route back to 15% EBITDA margins as it continues to reduce cyclicality and volatility from the business that was previously heavily reliant on Titan performance. International activity drives momentum Trading in Q3 has been reasonably strong as activity across the global oil and gas industry continues to accelerate. Strong performance across the group, driven by international markets offset a minor slowdown in the North-American onshore market, however Titan remains resilient with solid margins due to the product mix. EBITDA YTD stands at $75m (H1 $48.7m). The company finished the period with net debt of $68m ($51.7m at H1), as working capital increased by $28m over the quarter with investment needed to meet secured orders. Management believes that cash generation will continue through Q4 and into 2024, with inventory beginning to unwind and delivering strong cash generation, and expects to be broadly net zero by year-end. FY23 Guidance reiterated The order book remains strong and provides line of sight on future revenues with large contract wins across the group and now stands at c.$511m and a tender pipeline above c.$1bn. This provides a strong backdrop for the business. The company guides to a similar H2 performance, for EBITDA in line with previous FY23 guidance of $96-100m as sales momentum and profitability are sustained, and FY24 EBITDA guidance is $125-135m. Major subsea order This month the company received another large order of $59m for its titanium stress joints in South America, confirming the continued success of Hunting's stress joint technology for application for FPSO facilities and operating in key growth markets.
Hunting’s CMD provided a detailed run-through of its strategy across all product groups that demonstrated the growth potential for all business units with some of the best market fundamentals the CEO has seen in at least ten years. Focus remains on growing revenue, diversifying the portfolio, and expanding margins. We highlight OCTG, subsea and advanced manufacturing as sectors with promising signs of rapid growth and significant competitive advantage. Robust financial framework – Top line growth and a route to 15%+ EBITDA margins is expected to result in significant FCF generation of c.$325m by 2025 and over $1bn by 2030. Importantly, the company has provided a 2025 working capital target of c.35% of annualised revenue and 15% ROCE that will be delivered through a series of optimisation programmes. Dividends – Plans to increase the dividend by 10% and favouring dividend increases over buybacks. Hunting Titan – Softness in the US rig count should be offset by international orders (Argentina, China and Mexico) as they adopt US completion techniques, and also driven by new product lines entering the market. Current oil price strength combined with a pullback in spending and requirement to offset production declines should see a rebound in rates in 2024. Subsea – Expecting 26% revenue CAGR to 2025, driven by unique competencies and IP, specifically Titanium Stress Joints, where international demand is growing significantly, specifically in Guyana. Targeting to deliver c.$250m of revenue by 2030. There is also a massive ‘customer lifetime value opportunity’, across the asset lifecycle, adding value from the initial order and instillation stage to incremental value growth from Future Field Development as well as cross-selling potential. Advanced manufacturing – Long lead times and good visibility give comfort in growth across US defence, medical devices and commercial space market that is set to deliver 29% revenue CAGR to 2025. OCTG a critical product for the global energy industry – Planning to grow market share and move up the value chain to deliver a better ROI. The requirement for premium connections is paramount for the energy industry and Hunting provides a unique solution. There is a focus on key strategic partnerships with steel mills to drive international order growth. Energy transition, geothermal and carbon capture key focus – Hunting has developed its product line and partnerships to a point where it is market ready and now poised to grow market share, targeting $250m of revenue by 2030.
Statement ahead of capital markets day sets strong growth ambitions. Hunting has released a statement in advance of its capital markets day later today. On the numbers side, this includes further details of the company’s targets, including achieving revenue of c.US$1.3bn and an EBITDA margin of c.15%, both by 2025, which would imply an EBITDA number of US$195m for 2025. Hunting reported US$52.0m of EBITDA for 2022, and today reiterates guidance of US$96-100m for 2023 and US$125-135m for 2024. As such, the new 2025 target represents yet more significant growth, in addition to the recovery that is expected to continue this year and next. For context, Hunting’s recent peak performance was US$269.6m of EBITDA on revenues of US$1,386.5m (a margin of 19.4%), achieved in 2014 and largely based on Titan/North America.
This afternoon Hunting will present its “Hunting 2030” strategy, outlining its ambitions to expand in traditional energy as well as non-oil and gas markets. The company also reiterates its investment case that centres around its strategy to achieve 15% EBITDA margins by 2025 with further improvement by 2030, with multiple avenues for growth, reducing cyclicality and volatility from the business that was previously heavily reliant on Titan performance. Hunting 2030 – An ambitious set of targets in the medium and long term – focused on cash generation Hunting announced the launch of the Hunting 2030 strategy earlier this year, a broad-based strategy to grow and evolve the company through the remainder of the decade and beyond. The company has outlined a series of long term targets that demonstrates ambition and focus on strong cash generation, which includes: 1) c.$1.3bn revenue per year by 2025 and c.$2bn by the end of the decade; 2) EBITDA margins of c.15% by 2025 with further progression by 2030; 3) c.$325m of cumulative FCF by 2025 and over $1bn by 2030; 4) ROCE of c.15% by 2025 and further improvement by 2030; 5) Net leverage below 1.5x through the period to 2030; 6) 10% dividend growth with potential for share buybacks. Energy transition a key focus and expect to hear more at CMD Late last year the company formed an energy transition team to capitalise on the capital flooding into these markets and to ensure Hunting has the right products in its portfolio, focused on the energy transition. The focus of the business remains on its IP and high-end engineering and how that can be applied to markets like geothermal and carbon capture. Growth in the near term to be spearheaded by OCTG, advanced manufacturing and subsea product groups In the past 24 months we have seen significant momentum in the non-Hunting Titan segments, such as OCTG (oil country tubular goods), advanced manufacturing and subsea product groups. OCTG and Subsea product demand has increased considerably internationally, which has led to substantial orders and an order book above $500m and a tender pipeline of c.$1-1.2bn. This provides a strong backdrop for the business but also potential to boost margins across product groups. The Company's CMD is scheduled at 2:00pm – link to webcast
Hunting has release its H1 results to the end of June 2023. These report strong growth, in-line with recent guidance, supported by a wider return to growth across Hunting’s international markets.
Hunting’s interim results are largely in line with the recent trading update and demonstrate a strong H1 which was ahead of original expectations at the start of the year. The outlook for 2023 continues to be positive, with 2024 revenue visibility also improving due to the orders secured during the period. We highlight the upcoming CMD on September 13th where we look forward to updates on the medium-term strategy to diversify the business, to establish greater resilience to cyclicality of the Oil and Gas industry, with a focus on long term growth across the portfolio. Strong interims in line with recent trading statement H123 revenues of $478m, up 42% y-o-y, with market activity steadily improving through the period, driven by strength across most international markets. Additionally, H1 adj. EBITDA was $48.7m, at a 10% margin, in line with our expectations and company guidance. Underlying EPS was broadly in line with expectations at 9.6c/share. Strong performance across the group, driven by international markets with large OCTG orders, and Titan remains resilient. The company finished the period with net debt of $51.7m, which reflects the investment in inventory as previously guided, due to the new orders secured across the Group. This is expected to unwind through the year and the company is well positioned to deliver strong cash generation in H2. Interim dividend declared of 5.0c/share, in line with dividend growth ambitions (H1 2022 - 4.5c/share) FY23 and FY24 earnings outlook robust The order book continues to improve following further order wins across the group and now stands at c.$530m. The company guides to a similar H2 performance, for EBITDA in line with previous FY23 guidance of $96-100m, and FY24 EBITDA guidance of $125-135m. Focus on Hunting 2030 strategy at CMD Hunting will provide more detail on its medium-term strategy at its CMD on 13th September. The company has highlighted this can be delivered through organic and inorganic growth, with a 15% EBITDA margin target and 10% dividend growth.
A more balanced portfolio – In the past 24 months we have seen significant momentum in the non-Hunting Titan segments, such as OCTG (oil country tubular goods), advanced manufacturing and subsea product groups. OCTG and Subsea product demand has significantly increased internationally, with premium connection and high-spec products in high demand among large international providers, providing a strong macro backdrop for the business. Earnings momentum – Hunting has delivered 18 months of strong demand recovery and the company appears poised to continue delivering robust revenue growth, simultaneously driving an increase in margins and, ultimately, improved profitability. We have seen multiple upgrades in EBITDA guidance over the past 12 months, with latest FY23 guidance of $96-100m and FY24 guidance of $125-135m, given a record order book and visibility on current trading of c.$530-550m. This would be the strongest year since 2019 and back to pre-covid levels, and a route to its 15% EBITDA margin target. Robust balance sheet – Beyond this year, we expect the company to considerably build its healthy net cash position, generating strong FCF which can then be used for additional shareholder returns, or to potentially strengthen its M&A capabilities and organic growth developments. Catalysts to come – Hunting has multiple investor events over the coming weeks that could act as important milestones for the company: interim results 24th Aug, analyst briefing Sep 8th, CMD Sep 13th. The key focus for us will be the CMD, which will provide further detail on the ‘Hunting 2030’ strategy, where we expect further insight on the medium-term and energy transition strategy. Valuation – We update numbers for new guidance and our TP increases to 445p from 400p, driven by the uplift in our forecasts.
Hunting has released a trading update, reporting a strong H1 for the company on the back of growth in USA and South America demand alongside higher activity in APAC
Hunting has announced a significant new OCTG contract, and an increase in its 2023 EBITDA guidance
Forecasts for 2023 remain unchanged, a little behind consensus. We have now updated our Hunting model for the recent full year 2022 results. For 2023 we continue to leave our forecasts unchanged, with our numbers remaining a little below guidance. Hunting guided to 2023 EBITDA of c.US$85-90m in December, and maintained this at the results in March, while current consensus is US$86m. The results also included guidance of an EBITDA margin for 2023 of c.10% (7.2% was achieved in 2022), with a longer-term target of 15% under the company’s updated corporate strategy. CAPEX was also guided at US$30-40m. Our 2023 forecasts are in-line with EBITDA margin and CAPEX guidance.
Full year results report a strong year of recovery. Hunting has released its full year 2022 results. Revenues are reported at US$725.8m, compared with our US$695.7m forecast and consensus of US$710m (2% beat). EBITDA is then reported at US$52.0m, against guidance in December of c.US$50m, our forecast of US$50.2m and consensus of US$51m (2% beat). As such, this is minor outperformance versus expectations.
Hunting’s FY22 results are largely in line with expectations and importantly demonstrate a year of steady progress and a platform to build on in FY23E. Alongside its FY results, the company has launched its 2030 strategy to continue to diversify the business, to establish greater resilience to cyclicality of the oil and gas industry, with a focus on long term growth across the portfolio, a 15% EBITDA margin target and 10% dividend growth per year. FY22 outturn broadly as expected. FY22 revenues $725m, up 39% y-o-y, with market activity steadily improving through H2, aided by a build-up in activity both onshore and offshore. Additionally, FY22 adj. EBITDA was $52m, in line with our expectations and company guidance. Underlying EPS were broadly in line with our numbers at 4.7c/share. Net cash was c.$25m at year end. The strong balance sheet can fund opportunistic M&A, diversification to capture opportunities in the energy transition and fund working capital from recent contract wins. FY23 earnings outlook robust The order book continues to improve following further order wins within the Subsea Technologies business group and the company reporting good levels of enquiries across the portfolio. The group's order book now stands at c.$473m. In December, the company announced that its EBITDA target has been raised with an EBITDA target in the range of c.$85m-$90m – previously c.$80m (up 6-13%) on the back of the robust outlook and improved earnings visibility. Exciting 2030 Strategy launch focuses on diversifying the portfolio and long-term growth Hunting has launched its medium-term strategy to capitalise on the increased activity in structural investment in oil and gas as well as non-oil and gas business and the energy transition. It plans to stimulate growth across its core product areas and especially across non-oil and gas sub-sectors, where Hunting can leverage existing expertise. The company has highlighted this can be delivered through organic and inorganic growth, with a 15% EBITDA margin target and 10% dividend growth per year. A CMD in September will expand upon today’s strategy launch.
Trading update
Year-end trading update The Q4 update signals that FY trading and outturn remain in line with expectations, with an EBITDA of c.$50m projected (INVe $52.0m, Bloomberg consensus $50.7m). This compares to a broadly breakeven FY21 EBITDA outturn. The order book continues to improve following further order wins within the Subsea Technologies business group. The Group's order book now approaches c.$500m. Improved outlook Subsequently, 2023 market expectations have been raised with an EBITDA target in the range of c.$85m-$90m - previously c.$80m (up 6-13%). Net cash is expected to be $20m by year end. The strong balance sheet can fund opportunistic M&A, diversification to capture opportunities in the Energy Transition and working capital from recent contract wins. Years of industry under-investment is finally catching up with the supply-demand balance. Formation of global Energy Transition sales group Hunting announces the formation of a global Energy Transition sales group to pursue carbon capture, geothermal and other low carbon technologies. Crucially, low levels of capex are expected given that Hunting's key product lines naturally align with energy transition markets. A rising ROIC will help drive the rating. Valuation On unchanged estimates (pre EBITDA guidance raised 6-13%), the shares trade on a FY23E EV/EBITDA of just 6.4x. We reiterate our Buy given the improving outlook, strong balance sheet and compelling valuation.
Industry capex upcycle: The tight global supply of both oil and gas was driving up prices before the Russia/Ukraine conflict. Higher energy prices and the need for greater energy security has changed investor and political sentiment towards the sector. Years of industry under-investment has finally caught up with the supply-demand balance. We believe Hunting is now well placed to benefit from the coming multi-year investment cycle. US Titan growth: US onshore activity has recovered strongly this year. Labour shortages and capital discipline could limit further near-term upside in the US onshore rig count. Hunting Titan products have aided industry efficiency improvements, but competitors have closed the technology gap, especially in perforating systems, holding back a return to previous peak margins. International recovery: Further revenue and profit recovery could be driven by a recovery in international (non-US) markets, especially Asia Pacific, which had $146m of revenue in FY19 and, we estimate, only $91m in FY24E. Forecasts: We revise our forecasts to reflect the 1H outturn and the reiterated 2H22 guidance. Despite the worsening global macro outlook, we see upside risk to our new estimates if energy prices remain elevated. M&A: The strong net cash balance sheet is helpful to fund both opportunistic M&A and higher working capital from recent contract wins. The new asset backed debt facility provides firepower if larger M&A deals appear. Steady dividend growth: We expect Hunting to steadily increase the dividend pay-out as earnings and cash generation improve. Organic oil recovery: Recent licence extension and positive customer traction could start to unlock its potential to be a material profit contributor. New 350p TP provides 24% upside: Our TP increases by 125p to 350p.
H1 2022 results
Interims better than expected 1H revs up 37% y-o-y, and 21% h-o-h, to $336m, aided by increased volumes, especially in North America (mainly onshore shale, both oil and gas) and higher selling prices as input cost inflation is passed through. Hunting Titan and the North American segment have seen increasing activity and improving order intake for 2H22 and FY23. 1H adjusted EBITDA was $20.6m, above the guidance range of $16m-$18m given at the 30 June trading update. With further improvement expected in 2H22 we see scope for 3Q22 and 4Q22 EBITDA to be above $15m per quarter, which could push FY22E adjusted EBITDA back above $50m (Factset consensus currently $47.3m). This would partially reverse some of the late June 20% consensus downgrades. Non-oil & gas activities are also increasing, moving steadily towards the 25% of Group revenue target. Strong net cash position provides M&A firepower The balance sheet remains strong with $86m of net cash in the bank (pre-IFRS 16 adjustments). Despite the adjusted loss per share of 2.4c, the interim dividend increased 12.5% to 4.5c. Strong August order intake In a separate trading update HTG has announced its largest single order for OCTG products, worth $86m, from CNOOC for an offshore project in China. The total group order book now exceeds $400m, more than doubling since FYDec21. Forecasts under review We continue to have our forecast, TP and recommendation under review, as we await signs that order intake momentum is finally coming through and improving visibility. The shares trade on 30x our CY22E earnings, falling to 12.8x in CY23E, CY23E EV/EBITDA of only 4.7x, a 9% FCF yield and a 3.4% dividend yield. We will be looking for any management commentary today on Organic Oil Recovery where HTG has some exclusive exposure.
Trading statement shows ongoing recovery
Q1 trading statement
Forecast and target price update
FY21 outturn broadly as expected FY21 revenues $522m, down 17% y-o-y (we had our $532m), with market activity steadily improving through the 2H21 aided by higher US onshore rig count, oil and gas prices. FY21 adj. EBITDA was $3.1m, slightly ahead of our $0.8m estimate, while underlying EPS was negative 27c (INVe -31c). The Board’s improving confidence in the medium-term outlook and the strength of the balance sheet allows it to declare a final dividend of 4.0c, better than our 3.0c estimate. Overall, self-help action has minimalised the impact of CV19 and oil price volatility, and the outlook is improving for all of its businesses. The restructuring of the European OCTG business, announced in late December, is aiding portfolio efficiency and is a key part of the active management of the product portfolio. We look forward to more details on the prospects for the Organic Oil Recovery product and expansion of the non-oil and gas business. Left wanting more on the strategy details As we have previous written, we still would like more clarity on the strategy beyond the US onshore rig count recovery We place our forecasts, TP and Rec under review. We currently expect a return to profitability in FY22E, where on current forecasts the shares trade on 8.0x EV/EBITDA. For FY23E they trade on 15.3x earnings and 5.6x EV/EBITDA.
Full year 2021 results
New Jindal SAW JV in India
Year-end trading update Trading during 4Q21 has been as management expected, with a broadly breakeven FY21 EBITDA outturn at group level still expected (INVe $0.8m, Factset consensus $3.6m). US onshore activities continue to strengthen as the rig count steadily rises on the back of higher oil and gas prices. Hunting Titan trading was ahead of management’s expectations in the last few months. The EMEA region continues to experience subdued activity with further cost-cutting action helping to reduce losses (INVe: $10.5m EBITA loss in FY21E). The Asia Pacific region has seen a recent improvement in activity, with November being broadly break-even (INVe: break-even in FY21E). The order book has risen 20% in the three months to 30 Nov although no absolute numbers given. This improvement has been driven by higher order intake in both the US and Europe. A further increase is expected in December on new contract wins. Net cash (pre-IFRS 16 lease liabilities) was $77m on 3 December, with tight management of cash expenditure and working capital. A new asset-based lending facility is expected to be secured in the coming weeks. Improving outlook While it is encouraging that management are beginning to see the higher oil and gas prices starting to improve the outlook for customer activities, there remains strong competition and significant industry spare capacity to be absorbed. Improved visibility and a long-term strategy needed before the shares will re-rate We put our TP and Hold under review but remain cautious on the timing and trajectory of the profit recovery. ESG headwinds in the industry are not reducing and, without improved visibility to a further step-up in US onshore drilling activity, it is difficult to estimate what the profit potential of the core Hunting Titan division could be. The current breakeven profitability is set against WTI oil at $70, high gas prices, and a US onshore rig count back to 576 from the 244 lows in 2020. We note the current market capitalisation is close to the combined inventory and net cash level, providing a level of support, but we remain cautious of further inventory write-downs as idle stock is made obsolete by new innovations. Prelims due 3 March.
Year-end trading update
Slow start to FY21 compounded by 3Q weather/Covid disruption: Full year guidance has been lowered again, with the Board now expecting broadly break-even EBITDA (consensus c.$15m). 3Q activity in the US was impacted by Hurricane Ida (following snow in 1H) closing down Hunting facilities and customer operations. Covid-19 continues to disrupt operating efficiency and activity levels and global supply chains. Some recovery in Hunting Titan has been seen as customer drilling and completion activity increases. Activity in the Gulf of Mexico, EMEA and Asia Pacific remains challenging, despite the increase in oil and gas prices. Inventory levels: Inventory at the end of 3Q21 was $266m, flat on the $267m at 1H21, and equivalent to 74% of the current Enterprise Value. Forecast reset: We have reset our forecasts to reflect updated FY guidance with a slower-than-expected recovery through FY22E and FY23E. We forecast adjusted EBITDA to reach $90m in FY23E, still only a third of the FY14 peak of $270m. The trajectory of the profit recovery remains highly uncertain, despite improving energy prices. We introduce our new FY23E EPS at 21c, putting the shares on a 13x PE multiple and 4x EV/EBITDA, with a FCF yield of 6.6%. We look to management to share their long-term strategic vision and how they plan to maximise stakeholder value from the energy transition. The risk of further disruption to the profit recovery and the absence of a long-term strategic vision causes us to apply a 20% valuation discount to our international peer group. With only 2.4% forecast total return to our new 190p TP (down from 315p), we downgrade to Hold (from Buy).
Q3 trading statement
Downgraded FY outlook Hunting updated 1H profit guidance at the mid-July pre-close trading update so the 1H adjusted EBITDA loss of $3.6m was in line with this lowered guidance. Activity levels across its end markets have been improving, but at a slower rate than previously anticipated. This has led to a revised full year outlook, which looks likely a significant downgrade to FY21 adjusted EBITDA expectations. The Hunting Board now anticipate EBITDA to be $10m lower than in FY20 ($26m). We put our forecasts under review and see scope for consensus (currently $31m on FactSet) to reduce by c.50% to c.$16m. 1H outturn as expected 1H revenue was $244m, down significantly in 1H20 but broadly flat H-o-H. Adjusted EBITDA was a $3.6m loss, in line with mid-July pre-close guidance for a modest loss. Towards the end of the period, growth is seen across most end markets. CV19 is still impacting International (non-US) activities, although a steady improvement through 2H21 and into FY22 is still expected. Strengthening order book On a more positive note, the order book for FY22 is improving visibility and management are encouraged by progress. We do see new products and services, like Organic Oil Recovery, providing medium-term growth opportunities. Net cash provides protection and strategic options A net cash (pre-IFRS 16 adjustments) balance sheet of $106m gives strategic options and is allowing selected M&A, like the Cumberland additive manufacturing investment two days ago. It also allows for the continued payment of dividends (1H dividend 4.0c, as expected). The company is also launching an ADR programme. Forecasts, TP and Rec under review We put our forecasts under review given this latest downward revision to guidance. We also put our Buy rating and TP under review and will be looking for increased disclosure on Hunting’s energy transition strategy in today’s presentation. While the strong balance sheet provides some protection from making significant shifts in business activity, we believe the valuation could be held back by the continued focus on conventional oil & gas end markets.
H1 trading statement
Q1 2021 trading statement
1Q trading in line As we anticipated, the higher oil price is feeding through into improving customer sentiment and activity levels. Several of HTG’s customers have published strong upgrades to capex spend expectations in recent weeks. We believe this is very encouraging and helps to underpin our expectation of a more material recovery in volumes in 2H21E. 1Q21 trading was as management expected, with a small EBITDA loss as offshore drilling activity remained subdued. US onshore revenue increased q-o-q, with monthly sequential improvement. Management are seeing green shoots of growth appearing across most product lines. Strong balance sheet provides M&A options Net cash at 31 March was $96m (before IFRS 16 adjustments, c.$40m) putting HTG is a strong position to do bolt-on M&A given the significantly reduced availability of traditional bank debt facilities to the industry Inventory levels continue to reduce, down $10m to $274m in the quarter. Return to profit in 2021 The Board continue to believe the company is well positioned for a return to growth in 2021. We place our forecasts and TP under review as we assess the phasing of our forecast profit recovery through FY21 given the small EBITDA loss in 1Q. The shares continue to look attractively valued, trading on c.22x our current CY22E earnings, c.7x EV/EBITDA, a 6.3% FCF yield and a 2.1% dividend yield. Hunting has a long history and an experienced management team that we believe have navigated this latest industry cycle well. The $86m of cost cutting achieved in FY20 will aid profit recovery in FY21 and should aid the profit drop-through of increasing revenues. The net cash position gives them a differentiated industry position and will allow them to invest in organic growth opportunities as well as selected M&A.
Challenging year Group full year revenue was $626m, down 35% y-o-y and below our $671m forecast in volatile markets. Management reacted quickly to reduce costs and the company has traded at or near breakeven since March 2020. FY20 adj. EBITDA was $26.1m (after $28.4m in 1H20) and in line with our $25.9m estimate. There were a few bright spots, like the Subsea business (revenues +57% y-o-y). The non-oil & gas AMG business continues to be resilient. Tight cost controls, including mothballing/closure of two US sites and one Canadian site, and a 20% headcount reduction, give annualised cost savings of $62m. Asset impairments are significant at $175m, but relatively in line with industry peers. Underlying EPS was negative at -10.0c (INVe -9.3c). Cash preservation actions have resulted in net cash in the bank at period end of $101.7m (before IFRS 16) and its $160m RCF remains undrawn. HTG has continued to launch new products that are safer to use and save customers time and money. These should help at least maintain market share and drive revenue growth as the recovery in activity takes hold. The Board’s improving confidence in the medium-term outlook and the strength of the balance sheet allows it to declare a final dividend of 4.0c, as expected. Outlook Enquiry levels are improving as the oil price recovers, US onshore customers have been steadily increasing operations in 2H20 and into Jan/Feb, with accelerating activity expected into 2H21. Its non-oil & gas AMG business remains resilient. Overall, self-help action has minimalised the impact of CV19 and the oil price volatility. We put our forecasts and TP under review. We currently expect a return to profitability in FY21E, where the shares trade on 12x EV/EBITDA; in FY22E the shares trades on 21x earnings and 7x EV/EBITDA. There is a live webcast today at 1pm, which can be accessed via this following link.
Full year 2020 results
Strategic investment in well data labs
Through the trough but recovery trajectory uncertain: The US onshore rig count is a key driver for the Hunting Titan business (39% of FY19 revenue) and while this has positively inflected, with four months of near continuous recovery to c.350 rigs, the near-term trajectory from here remains uncertain. We see c.500 rigs as achievable in the medium-term just to maintain current production levels. US frac crew activity in 2021 should steadily increase with WTI back above the breakeven price. We do not see a return to the boom times as growth is expected to be held back by industry funding issues (banks’ unwillingness to lend new funds) and the need to use cash generation to reduce debt levels. New forecasts: We factor in the more cautious 4Q20 outlook and a lower run-rate into FY21E. Our FY20E adjusted EBITDA reduces by 48% to $25.9m, and FY21E by 59% to $50.0m. Our FY20E operating profit turns negative and signals the trough as we expect a recovery into FY22E. Limited downside: Hunting trades at 62% of its TNAV. We believe there is limited downside to the current share price with the net cash balance boosted by partial conversion of $330m of inventory into cash. The recent oil price increase has reduced the risk of further impairments, after $30m in 1H20. Optically behind the energy transition curve: We understand Hunting is working hard behind the scenes to redirect its capabilities towards new higher-growth end markets, such as renewables and hydrogen, and to further develop its non-oil & gas electronics/advanced manufacturing revenues. Management are focused on optimising the near 3m sq.ft of manufacturing capacity to drive greater capacity utilisation, while retaining capacity for an oil & gas recovery. Attractive valuation: We believe HTG is steadily taking the action needed to survive in the new energy world. We look forward to hearing more on the transition strategy in 2021. Our new TP is 315p and we retain our Buy.
4Q as expected Group EBITDA to 30 November (Dec YE) was $26m, with a break-even outcome to November. We expect little to no contribution from December, putting the likely FY20 outturn at the bottom of the current Factset consensus range of $24-$44m. International markets saw lower activity, while activity in the US onshore market picked up from September/October lows in the rig count and frac crew utilisation. The Titan business has seen improved trading during 2H, with November broadly break-even, aided by a lower cost base. The Titan order book is now at its highest level since March. This is supportive of an improved y-o-y EBITDA outturn in FY21, we believe. Asian markets continue to be mixed, with Europe still loss-making. The run-rate into 2021 looks challenging, although consensus FY21 EBITDA is only $38m (we put our out-dated forecasts under review). The balance sheet remains healthy with net cash of $94m (pre-IFRS 16 leases), which helps HTG weather this storm and provides firepower for bolt-on acquisitions to take advantage of the current industry disruption. Management are preserving cash with a focus on inventory levels which have reduced in 2H, but are still at c.$300m. This is worth c.70% of the current mkt cap and if not written down further provides a level of downside protection. Capex for FY20 is expected to be c.$17m. Energy transition With a no meaningful recovery in sight, Hunting remains in survival mode as it steadily aligns itself to the global energy transition. Management are focused on growing the non-oil & gas activities (from the current c.10% of sales), especially the electronics and advanced manufacturing capabilities. Reduced Drilling Tools exposure On 15 December, HTG’s US business announced it had divested its Drilling Tools business and assets to Rival Downhole Tools in exchange for a 23.5% equity position in the enlarged Rival business. This allowed it to keep exposure to the onshore drilling tools rental market but with reduced capital requirements. Rec/TP and forecast under review – earnings recovery to take much longer We put our forecasts, recommendation and TP under review.
H1 2020 results
Closure of Canadian manufacturing facility
H1 2020 trading update
Q1 2020 trading statement
Dividend revision
Full year results follow up
Full year 2019 results
Acquisition of Enpro Subsea
Trading statement
3Q update – profits at lower end of consensus range The 3Q trading update has confirmed that profits for FY19 will be at the lower end of current market expectations (latest company gathered adjusted EBITDA range $142m to $157m, mean $152m). We cut our forecast to $150m three weeks ago to reflect the recent market newsflow. Following this update we would expect consensus FY19 adjusted EBITDA to reduce towards $145m or a 3-4% downgrade. If it moves nearer $142m, this will be a 5-6% reduction. We place our forecasts under review US shale challenging US shale remains a tough market as operators focus on cash generation and reducing costs. Lower completions activity is increasing pricing pressures. Titan revenue fell in 3Q compared to both 1Q and 2Q and is expected to see a further q-o-q slowdown in US drilling activity in 4Q19 which has caused the majority of the reduction to profit guidance. Despite the lower volumes, Hunting continue to gain Perforating Gun market share with both the H-1 and newer H-2 systems gaining market traction driven by safety and efficiency performance. New product innovations such as E-SUB and T-Set One are being adopted by customers. Diversification benefits The Hunting AMG and Hunting Electronics division continue to make good progress, showing the benefit of a broader product/service offering. Strong balance sheet Cash generation remains positive, with inventory levels reducing slightly y-t-d, although working capital increased in 3Q over 2Q. High inventory levels help to meet customer lead-time demands. The balance sheet has significant firepower (3Q net cash $58m) for further acquisitions (the integration of RTI is going well) and to increase the dividend. Company guidance is for net cash at year-end to similar to that seen at the end of 3Q19. Attractive valuation Overall, end markets are as tough as we expected and an earlier than normal slowdown in activity and spending into the year-end remains our base case. However, we believe this tough near-term outlook is more than reflected in the valuation with scope for improved US activity into 2020 and further international momentum. We place our TP under review, but retain our Buy. The shares trade on 12x our existing CY19E earnings, falling to 10.4x in CY20E. CY19E EV/EBITDA is c.6x, with a c.10% FCF yield and a 2.4% dividend yield.
1H revenue and profits ahead of our estimates 1H revenue of $509m was up 15% y-o-y and 10% ahead of our $461m forecast, with strong growth in the US, EMEA and Asia Pacific end markets. Adjusted EBITDA was $77.4m, up 7% y-o-y and 12% ahead of our $69.2m. FY19 guidance is unchanged at this point with the stronger-than-expected 1H outturn having de-risked 2H; only a similar performance to 1H is required to achieve our FY19E adjusted EBITDA of $157m (3% ahead of consensus at $153m). This is against a backdrop of improving international markets, recently launched new products gaining market traction and cost benefits from automation and greater operational efficiency. Adjusted EPS was 23.6c, 13% ahead of our 20.9c, while the interim DPS was as expected at 5.0c. International markets improving International drilling markets are showing signs of improvement. Even the North Sea is seeing an increase in activity. Non-Titan MENA and Asian revenue saw significant y-o-y increases, especially in OCTG products. Firepower for more acquisitions The balance sheet remains strong with net cash of $33.4m, including IFRS 16 of $47m lease liabilities, in line with prior guidance and with $20m of cash generated in the period. The acquisition of RTI Energy Systems on 16 August for $12.5m adds to the Hunting subsea product offering by providing specialist titanium couplings for the deep water markets. Attractive valuation Overall we view this update as very reassuring. We believe management is controlling the variables it can influence. It continues to move the business forward, despite challenging market conditions. Investment in new product development during the downturn years since 2014 has put Hunting in a strong position to benefit from the recovery in international markets; the improvement in these is encouraging and could, in time, provide scope for estimate upgrades. The valuation remains very attractive on sub 10x PE and sub 5x EV/EBITDA in CY20E along with a 10% FCF yield and 3.4% dividend yield.
HTG IR5B RI RI
Hunting recently released its Q1 statement. This reported revenue levels for Q1 2018 “at a similar average monthly run rate to that reported in Q4 2017”, which we estimate to be around US$70m/month (implying US$210m for the quarter). EBITDA was also very strong, reported at US$33m for the quarter, compared to US$22m for Q4 2017. The surge in EBITDA was based on the onshore US business (principally the shale focused Titan segment, which is now operating near capacity), and benefited from reduced costs compared with the previous quarter, as Q4 2017 included a share of a number of 2017 costs removed early in the year but still taken through the P&L evenly over the four quarters (including some re-organisation costs, and losses in non-US facilities).
Hunting has released its Q3 trading statement. This reports a continued improvement in trading for the period on the back of continued strong performance from the US onshore business. Revenues for the full year are now expected to be around US$700m, with a “modest” PBT. EBITDA for the first three quarters is reported at c.US$33m. Given this performance and outlook, we have upgraded our numbers today, with 2017 EBITDA moving from US$42.5m to US$45.8m.
Hunting is a well run company with a strong suite of proprietary products and a healthy balance sheet, and this year it has returned to positive EBITDA. The company has played a difficult hand well over the course of the industry downturn, and we expect continuity under new CEO Jim Johnson. We are of the view that significant further improvements in financial performance will be required in order to support current share price levels, however. This will require recovery in Hunting’s offshore business, which we in turn expect to require further oil price recovery, to levels over US$60/bbl. We do not believe this is likely short-term, and think it more probable that the H1 results next week remind the market of Hunting’s current position. We believe this will put downward pressure on the shares over the coming weeks, and we move our recommendation from Neutral to Reduce, setting a 380p price target.
Hunting (HTG) released its results for the six months to 30 June 2016 this morning. As anticipated these set of results are weak, HTG’s revenue has fallen 51% YoY to US$228.4m. Underlying EBITDA was (US$29.5m) vs a profit of US$20.4m for H1 2015. Similarly it reported a loss from operations of US$77m vs a loss of US$63.1m in H1 2015. However, on the positive side net debt reduced 21% since YE 2015 to US$87.5m. This is in part due to reclaimed tax and continued cost cutting measures as well as reduced capex.
Yesterday afternoon Hunting (HTG) released a particularly negative trading update further to its downbeat trading statement earlier in April, which painted an uncertain outlook for the company. In this update HTG confirmed that weak performance in Q1 has continued throughout April and May, which does not come as a surprise. Indeed its share price fell 12% yesterday.
Hunting has released a Q1 trading statement in advance of its AGM later today. This reports continued trading weakness across its business, with Q1 2016 revenues down c.50% on Q1 2015. Cost cuts have continued with headcount now down 40% versus the start of 2015, driving c.US$82m of annualised cost savings (compared with the 30% reduction to the end of 2015). Of note in our view is the balance sheet: net debt is now back up to c.US$132m at the end of March from US$110.5m at the end of December, and “all non-essential expenditures have been minimised”.
This Morning’s News Hunting (HTG LN) Oil & Gas Prices
Hunting shares have had a strong run in recent weeks up from lows around the 250p level. In our view this has been driven primarily by the recovery in the oil price back towards US$35/bbl and market perception that we may now have reached an inflexion point for oil services. We continue to remain bearish on the stock however, for the following reasons.
This Morning’s News Hunting (HTG LN)
Hunting manufactures a range of products used by oil and gas companies to help extract hydrocarbons from the wellbore. It is well run with a strong management team and significant production capabilities. The company had a stellar period over the last few years with earnings growing strongly, partly on the back of the US shale boom. The fall in the oil price has turned the company’s fortunes around however with industry CAPEX cuts having a knock on significant impact on demand for Hunting’s products. This is demonstrated by our 2015 earnings forecast which is only 19% of 2014. Hunting’s quality remains but the industry – particularly shale – is just not spending like it was. We do not believe that the market has fully appreciated this and the H1 results on 27 August could act as a catalyst for this to begin to happen. We today move our recommendation from Neutral to Reduce.
