Shifting Energy Policies Will Shrink Oilfield Market And Margins

Key Takeaways

• Hunting faces persistent revenue and margin pressures from declining oil demand, rising regulation, and industry consolidation.
  
• Failure to diversify into low-carbon technologies risks technological obsolescence and further erosion of profitability.
  
• Strategic expansion and diversification into high-growth segments and regions, plus strong cost discipline, are set to drive sustainable revenue growth and margin improvement.

Catalysts

Manufactures components, technology systems, and precision parts worldwide.

• The accelerating global shift toward renewable energy and decarbonization is expected to result in a structural decline in oil and gas demand, shrinking Hunting's core addressable market and driving a sustained reduction in long-term revenue even as investments in hydrocarbons slow.
  
• Escalating regulatory pressures, including potential increases in carbon taxes and stricter emission standards, will likely make hydrocarbon production less competitive, restrict new investments, and directly compress net margins for oilfield service providers such as Hunting.
  
• High customer concentration in cyclical oil and gas markets will continue to amplify volatility in order flow, causing unpredictable swings in earnings as exploration and production spending contracts across future oil price downturns.
  
• If the transition into low carbon or alternative energy segments (such as carbon capture or geothermal) continues to stagnate or underperform expectations, technological obsolescence and lost market share are likely, further limiting future revenue and eroding profitability.
  
• Long-term industry consolidation is set to transfer greater bargaining power to Hunting's major customers, resulting in increased pricing pressure and shrinking gross margins, while competition from lower-cost rivals in emerging markets intensifies and undermines Hunting's ability to maintain or grow earnings.

Hunting Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Hunting compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Hunting's revenue will decrease by 1.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -3.1% today to 9.4% in 3 years time.
• The bearish analysts expect earnings to reach $96.3 million (and earnings per share of $0.61) by about September 2028, up from $-34.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 9.1x on those 2028 earnings, up from -20.4x today. This future PE is greater than the current PE for the GB Energy Services industry at 7.5x.
• Analysts expect the number of shares outstanding to grow by 0.29% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.97%, as per the Simply Wall St company report.

Hunting Future Earnings Per Share Growth

Risks

• Hunting's strategic expansion into high-margin, high-growth segments such as Subsea and FPSO components, underpinned by recent acquisitions, broadens its addressable market and is poised to support top-line growth and net margin expansion over the coming years.
  
• The company's strong pivot towards international markets, particularly the Middle East, South America, and Asia-Pacific, reduces regional concentration risk and capitalizes on secular energy demand growth, likely enhancing revenue resilience and future earnings.
  
• Robust operational and cost discipline, evidenced by significant working capital reductions, facility rationalization, and a $20 million annualized cost savings program, are driving improvements in free cash flow generation and net profitability.
  
• A surge in order pipeline and tender opportunities-over $1 billion mainly in Subsea and OCTG-with a strong backlog in high-margin product categories provides significant earnings visibility and supports potential revenue growth through 2026 and beyond.
  
• Diversification beyond traditional oil and gas, including scaling up geothermal, nuclear, defense aviation, and advanced manufacturing, positions Hunting to capture growth from long-term energy transition trends and sustain or increase revenues and margins over the long run.

Valuation

• The assumed bearish price target for Hunting is £3.29, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Hunting's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £5.97, and the most bearish reporting a price target of just £3.29.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $1.0 billion, earnings will come to $96.3 million, and it would be trading on a PE ratio of 9.1x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of £3.29, the bearish analyst price target of £3.29 is 0.0% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.