Hunting – A ‘Quality Growth Stock’ For 2024
I have been following this £460m capitalised group’s fortunes for so long now, it must be decades – but then I am very old so please excuse my lack of preciseness.
Established in 1874, it has had many ups and downs over the years but, as I have said before, I do have faith in its Management, as well as the potential market prospects for the products and services that it provides on a global basis.
The Business
Located in 11 countries across four continents, it manufactures critical components, high technology systems and precision parts for international oil and gas and energy service groups.
It has some 27 production locations and 13 distribution centres across the world.
It maintains a corporate office in Houston, but it is headquartered in London.
As well as the UK, the company has operations in China, Indonesia, Mexico, Netherlands, Norway, Saudi Arabia, Singapore, the United Arab Emirates and the United States of America.
Its Operations
The group has five operating segments: Hunting Titan; North America; Subsea Technologies; Europe, Middle East and Africa; and Asia Pacific.
It is a world-leading manufacturer and technology provider for energy, aerospace and defence, measurement while drilling; transportation; utilities; medical; and power generation industries globally.
Over 90% of the group’s revenues in 2022 were derived from the energy sector, while it is now rapidly developing its non-oil and gas customers.
The range of systems and technologies include subsea technologies; perforating & logging systems; well testing; advanced manufacturing; connection technology & oil country tubular goods (OCTG); well intervention equipment; electronics; and organic oil recovery.
Sales Per Business
In its 2022 Trading Year the group turned over $726m – of which Oil Country Tubular Goods represented 35.7% of sales; Perforating Systems 34.7%; Advanced Manufacturing 10.3%; Subsea 9.5%; Intervention Tools 5.0%; while Others took 4.8%.
On a per region basis – North America accounted for 44.8%; Hunting Titan 35.5%; Asia Pacific 10.1%; EMEA 4.8%; and the UK was 4.8% of the total.
Q3 Trading Update And Order Book
In the last week of October, the group announced its Q3 2023 Trading Update which was really quite positive.
At the same time the company announced an additional major subsea order, worth $59m, further boosting the end-September $511m Order Book.
At that time CEO Jim Johnson stated that:
“We are delighted to have received another major order for Hunting’s titanium stress joints. The technology is gaining further acceptance for application to offshore production vessels and we are pleased to be supporting clients with technology which delivers safer and faster cash flows for them.
The performance of the group has been encouraging in the period driven by strong international demand for oil and gas, underpinned by an increasing global focus on energy security and continued economic growth. Each of Hunting’s product groups continues to execute on its strategy of growth.
Our diverse product platform plays to the long-term investment themes of the industry, including strong growth in offshore work and international activity levels growing at a robust rate.
We are also pleased to note that commodity prices are showing resilience. This strength will continue to deliver commitments to new drilling and completion activity as we enter 2024 and positions the Group strongly going forward.”
Management Strategy 2030
Hunting’s Management has set out its strategy for the group’s growth to 2030 – it plans to deliver $2bn of sales per annum by the end of this decade, at margins of 15% plus.
It sees the group’s key areas of opportunity include growth of its OCTG businesses, driven by strong international oil and gas demand and the high-growth energy transition markets of geothermal and carbon capture, with an increase being expected to be seen in this final quarter for geothermal tenders for delivery in 2024.
The company also sees strong growth in its subsea businesses because offshore investment by the global industry is projected to double throughout the remainder of the decade.
There are also plans to accelerate its non-oil and gas sales, predominantly through its advanced manufacturing businesses, as it targets the high-end markets of aviation, commercial space, defence and medical.
That strategy is underpinned by a focus on delivering strong free cash flow to the end of the decade and an increasing dividend distribution.
The Equity
There are some 164.94m shares in issue.
Large holders include Hunting Investments Ltd (6.67%), Schroder Investment Management (5.67%), GLG Partners (5.51%), JP Morgan Asset Management (5.15%), BlackRock Investment Management (4.84%), Man Group Investments (4.36%), Rathbones Investment Management (4.04%), Hunting Employee Trust (4.01%), Slaley Investments (3.89%) and the Hunting Family Trust (3.17%).
Analyst Views
Analyst Daniel Slater at Zeus Capital has put out a 370p valuation on the group’s shares based upon his 2024 estimates.
For the current year to end December he is estimating sales rising to $912.0m ($725.8m), while adjusted pre-tax profits could rise to $56.3m ($10.2m), generating earnings of 25.7c (5.8c) and covering a dividend per share of 11.0c (9.0c).
For the next year he sees $1,098.9m revenues, $83.6m profits, 38.2c earnings and a 13.0c dividend per share.
Analysts Toby Thorrington and Andy Edmond at Equity Development reckon that the group’s shares are currently trading at a 30% discount to the group’s net asset value in the first half of the current year.
For the year to end December they look for $948.3m revenues, $51.0m of pre-tax profits, worth 21.8c per share of earnings and covering the 10c of dividend.
For next year their figures suggest $1.03bn sales, $76.9m profits, 32.3c earnings and a dividend of 11c a share.
The following year could see $1.12bn revenues, $102.6m profits, giving 43.7c in earnings and 12c in dividends per share.
The analysts have assessed a ‘fair value’ of 421p a share.
My View
Well that all sounds totally positive to me, obviously we will see more when the group announces its final Trading Update to the end of 2023 on Wednesday 10th January.
Despite having fallen back over the last couple of weeks or so, touching 262.5p last Thursday, upon looking at my charts and with the shares at 278.5p now, I still see at least 360p being an early target.
This is one of my ‘quality growth stocks’ for 2024 and I see another push back up to and above my previously beaten Target Price.
(Profile 15.03.21 @ 275p set a Target Price of 350p*)
(Asterisk * denotes that Target Price has been achieved since Profile publication)
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