Hunting (LON:HTG) – Disappointing Q3 Trading Update sees shares 20% lower, however they are now a bargain
Yesterday’s Q3 Trading Statement could have been a much more positive update than that delivered.
The global precision engineering group reported that with the recent decline in the oil price and renewed falls in US natural gas pricing, sentiment has reduced in recent weeks in areas of the sector, which will likely lead to lower client activity within certain product groups throughout the remainder of the year, most notably within the short-cycle Perforating Systems product group.
The company stated that its other product groups continue to perform well, based on this short-term market outlook, however it issued new guidance for the current full-year.
2024 full-year group-level EBITDA guidance was reduced to between c.$123-$126m, a reduction of around 8% on previous guidance issued in July 2024.
Management Comment
CEO Jim Johnson stated that:
"Hunting has delivered a 16% year-on-year increase in its year-to-date EBITDA result, as positive increases in trading were recorded across most product groups.
The Group's revenue and earnings continue to pivot towards our OCTG and Subsea businesses, which reflect the wider market momentum but also Hunting's diversified portfolio of products.
We are delighted to have commenced shipments of OCTG to KOC in the period and we look forward to building a strong relationship with the company in the coming months as new opportunities arise.
Thanks to the hard work of the dedicated team, we are ahead of the delivery schedule.
The $60 million of OOR contracts secured in the period has also been another milestone.
We have a high level of confidence that new orders from other major energy companies will be secured in the short- to medium- term, as the advantages of the technology are captured by our clients.
Our balance sheet remains strong, coupled with a significantly improved year-end cash projection.
We are pleased to have agreed new borrowing facilities in recent days. Accordingly, Hunting now has c.$393 million of liquidity available to pursue growth opportunities in the energy and non-oil and gas sectors.
Management is also continuing to review high quality acquisition candidates, with our focus being on subsea and well completions.
Our 2024 full year outturn had been predicated on a strong international market coupled with some improvement in our US onshore businesses.
Whilst the outlook for the international and offshore subsectors of the industry continues to remain firm, the slower than anticipated improvement within the US onshore has led to a deterioration in our short-term trading expectations.
As a result, we are reducing EBITDA guidance; however, we still expect to be broadly within the range guided at the start of the year."
The Business
Hunting is a global, precision engineering group that provides precision-manufactured equipment and premium services.
The group has five product groups: OCTG, Perforating Systems, Subsea, Advanced Manufacturing and Other Manufacturing.
It has five operating segments: Hunting Titan; North America; Subsea Technologies; Europe, Middle East and Africa ("EMEA") and Asia Pacific.
The company maintains a corporate office in Houston and is headquartered in London.
As well as the UK, the company has operations in China, India, Indonesia, Mexico, Netherlands, Norway, Saudi Arabia, Singapore, the UAE and in the USA.
Broker’s Views
Analysts Toby Thorrington and Andy Edmond at Equity Development now has a 397p per share ‘fair value’ reflecting estimate changes and near-term peer group multiples.
They now look for end-December revenues of $1,047.6m ($929.1m), with pre-tax profits of $73.4m ($50.0m), while earnings of 30.4c (20.3c) easily cover the estimated dividend of 11.0c (10.0c) per share.
Daniel Slater at Zeus Capital is now looking for $1,092.9m sales this year, $82.5m adjusted pre-tax profits, generating 35.0c in earnings and paying 11.5c per share in dividend.
My View
The news saw the shares collapse by nearly 20% to close at 300p, off 75p on the day.
At these levels risk-tolerant investors should be tucking a few away because Hunting’s growth will continue.
I predict that the shares will show some good recovery in price before the group’s next Trading Update, which is due on Tuesday 14th January 2025.
(Profile 15.03.21 @ 275p set a Target Price of 350p*)
(Profile 12.04.23 @ 240p set a Target Price of 300p*)
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