Shift To Energy Transition And Middle East Expansion Will Improve Future Prospects

Key Takeaways

• Pivoting to energy transition markets like geothermal and carbon capture aims to drive future revenue and tap into high-growth sectors.
  
• Expanding orders with Middle East partners and cost-efficiency measures are expected to enhance growth and increase margins.
  
• Reliance on the volatile oil and gas sector combined with restructuring challenges and geopolitical uncertainties threatens Hunting's revenue stability and margin growth.

Catalysts

Manufactures components, technology systems, and precision parts worldwide.

• Hunting's strategy to pivot from oil and gas to energy transition markets like geothermal and carbon capture is expected to drive future revenue growth by tapping into high-growth sectors.
  
• Expansion in international markets, particularly through orders from Kuwait Oil Company (KOC) and the Middle East, is likely to provide significant revenue and market share growth.
  
• The focus on cost-efficiency measures and restructuring, such as the planned savings in the Titan and EMEA segments, is expected to enhance net margins by reducing operational costs.
  
• Strong performance in the Subsea segment with ExxonMobil, combined with long-term agreements in the region, is expected to contribute to stable and growing earnings.
  
• Leveraging its strong cash position and undergoing acquisitions in subsea and non-oil segments is likely to bolster revenue and earnings, enhancing overall business diversification.

Hunting Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Hunting's revenue will grow by 3.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from -2.7% today to 7.2% in 3 years time.
• Analysts expect earnings to reach $83.7 million (and earnings per share of $0.49) by about April 2028, up from $-28.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $95 million in earnings, and the most bearish expecting $70.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.9x on those 2028 earnings, up from -19.3x today. This future PE is greater than the current PE for the GB Energy Services industry at 6.4x.
• Analysts expect the number of shares outstanding to decline by 1.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.01%, as per the Simply Wall St company report.

Hunting Future Earnings Per Share Growth

Risks

• Continued reliance on the volatile oil and gas sector exposes Hunting to significant fluctuations in revenue and profitability, especially given the recent challenges in U.S. completion markets.
  
• Headwinds in the perforating systems business due to lower rig counts and gas prices could continue to exert pressure on margins, potentially affecting the group's overall earnings.
  
• The restructuring efforts, while aimed at improving efficiency, suggest underlying challenges in certain segments, which might impact net margins if not effectively managed.
  
• The impact of potential American tariffs, geopolitical shifts, and economic factors such as inflation and recession add uncertainty that could affect Hunting's market performance and revenue stability.
  
• Although energy transition markets are being pursued, the slower revenue growth in non-oil segments and dependence on future markets like carbon capture pose a risk to long-term revenue diversification efforts.

Valuation

• The analysts have a consensus price target of £4.599 for Hunting based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £6.0, and the most bearish reporting a price target of just £3.89.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.2 billion, earnings will come to $83.7 million, and it would be trading on a PE ratio of 13.9x, assuming you use a discount rate of 8.0%.
• Given the current share price of £2.59, the analyst price target of £4.6 is 43.7% higher.
• 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.