Hunting worth more than this after update reassures

There are plenty of analysts who think Hunting shares are undervalued. Graeme Evans studies latest results and market response.

Having been one of the London market's top performing shares this year, oil services group Hunting is threatening to end 2018 with a whimper.

The jitters since the company reinstated its dividend, alongside impressive half-year results in August, largely appear to stem from factors outside its control.

There was some encouragement today when Hunting produced a reassuring update for the third quarter of the financial year, even if this wasn't enough to prevent shares from declining another 3% to 674p.

In May, the FTSE 250 stock set a four-year high above 900p thanks to rising oil prices and the company's exposure to the US shale boom. A similar level was reached after August's consensus-beating results, only for geopolitical tensions and weaker commodity prices to kick in.

Source: TradingView (*) Past performance is not a guide to future performance

Management and analysts remain comfortable with 2018 guidance, although there's limited visibility on next year as the current global uncertainty weighs on sentiment and capital investment planning.

The US offshore and international market has continued to be slow for Hunting, offsetting the US onshore market where conditions are "relatively firm".

This highlights the ongoing benefits of Hunting's largest ever acquisition, when it bought Titan in 2011 in a deal that significantly boosted the company's exposure to the US shale market.

Titan's revenues and operating profits are in line with the previous quarter, with demand for its perforating guns, energetics and instrumentation "resulting in a steady performance".

However, a seasonal slowdown in North American drilling in November and December is likely to compound the "potential exhaustion" of clients' drilling and completion budgets.

Analysts at Kepler Cheuvreux remain optimistic, however, with their price target of 1,170p representing an upside of 67% on last night's level.

They said: "We think Hunting's Q3 trading update should reassure investors, especially regarding the performance of Titan."

Bernstein analyst Nicholas Green, who rates Hunting at 'market perform' with a target price of 800p, also thinks that investors should take a cautiously positive stance on today's update.

He added: "We are pleased to see management's confidence around ongoing demand for the Titan perforating guns, and their reaffirmation of consensus for 2018.

Green said that investors would still want reassurance on the impact of potential bottlenecks in the shale oil Permian Basin region in West Texas, which has been the largest contributor to Titan's sales. He is also concerned by competitive threats from larger multi-service providers

Hunting, which dates back to 1870s and joined the London Stock Exchange in 1989, scrapped its dividend in July 2016.

This was at a time of depressed oil prices, with the company facing a near 40% drop in annual revenues and the prospect of cutting its workforce by around 45% over 18 months.

But under the leadership of Jim Johnson, who became CEO in September 2017, the company reinstated its dividend at 4 cents a share in August.

*Horizontal lines on charts represent levels of previous technical support and resistance.