- Oil equipment and services specialist again raises earnings profit forecasts for 2024 and 2025
- Order backlog increases once more
- Company continues to develop new revenue streams to reduce reliance on hydrocarbons
“Bumper orders from the Kuwaiti Oil Company (KOC) for piping products used in drilling for oil are both a reminder that hydrocarbons could be with us for longer than many would like or hope and a boon for providers of the specialist equipment that enables exploration work, such as Hunting,” says AJ Bell investment director Russ Mould. “The company’s order backlog continues to expand and the visibility this provides means chief executive Jim Johnson is confident enough to nudge up earnings expectations for both 2024 and 2025.
“Even if worldwide rig activity is subdued compared to prior peaks, it is well off the lows of 2020 and 2016.
Source: LSEG Datastream data, Baker Hughes
“As a result, Hunting’s backlog is now $700 million, up from $565 million at the end of 2023, boosted by those Kuwaiti orders and strong capital investment in offshore drilling. This is driving demand for Hunting’s expertise in subsea hydraulics and modules, as well as casings, piping and tubing.
Source: Company accounts
“That $700 million backlog covers two-thirds of forecast annual sales for this year, which analysts believe will jump by a sixth to just under $1.1 billion, the highest figure since 2014.
Source: Company accounts
“That ongoing surge in the top line is taking profits higher, especially as the company has tidied up its balance sheet, refined its operations and cut costs. On the basis of its preferred profit metric of earnings before interest, taxes, depreciation and amortisation (EBITDA), management is steering analysts’ forecasts gently higher for this year and next to between $134 million and $138 million for 2024 and between $160 million and $175 million for 2025.
Source: Company accounts, mid-point of management guidance for 2024E and 2025E
“Those figures compare to the current consensus estimates of $133 million for 2024 and $163 million for 2025.
“Even if this is Hunting’s fourth consecutive earnings upgrade, some investors may therefore wonder whether the momentum in earnings forecast upgrades is petering out and that it is time to take profits as a result, especially as Hunting’s shares trade at their highest level since early 2020, just before the pandemic swept around the globe.
“However, the $870 million stock market valuation still represents just 1.1 times the value of the company’s tangible assets, which include $671 million in equipment and working capital. That still gives us a degree of downside protection, as does a balance sheet that carries very little debt.
“In addition, this is a company where earnings per share (EPS) exceeded 40p in 2012, 2013 and 2018. They also got close to that level in 2006. If they ever get there again then Hunting’s shares could still look cheap, and the more orders that come in and the higher the backlog goes the more inclined analysts will be to upgrade their earnings forecasts.
“The consensus EPS estimate for 2024 looks to be around $0.36 (27.5p at current exchange rates), with a jump to $0.47 (or 38.9p) in 2025, a figure that leaves the shares on barely 11 times earnings for next year.”
