Hunter Group ASA (OB:HUNT) has been on my radar for a while, and I’ve been consistently disappointed in its investment thesis. The biggest risks I see are around the sustainability of its future growth, the opportunity cost of investing in the stock accounting for the returns I could have gotten in other peers, and its cash-to-debt management. Whether a company has a good future, in terms of its business operation and financial health, is an important question to address.
Hunter Group ASA, an investment company, focuses primarily on oil services technology investments. Founded in 2003, it currently operates in Norway at a market cap of ØRE742.17M.
The first thing that struck me was the pessimistic outlook for HUNT. A consensus of NO energy equipment and services analysts covering the stock indicates that its revenue level is expected to decline by 416.45% over the next financial year. As HUNT is currently loss-making, this revenue headwind is expected to negatively impact its bottom-line, which should see a further decline from -ØRE132.87M to ØRE14.02M over the same time period.
Minimizing the downside is arguably more important than maximizing the upside. Generally the first check to meet is financial health – a strong indicator of an investment’s risk. Alarm bells rang in my head when I saw HUNT’s cash generated from its business is less than its outgoing cash expenses. This means that, although debt is relatively minimal (6.77% of equity), it cannot be serviced at all with cash from operations, which makes me uneasy. However, the company is able to generate enough earnings to cover annual interest payments. Cash management is still not optimal and should be improved, but its interest coverage somewhat reduces my concerns around the sustainability of the business going forward. HUNT has high near term liquidity, with short term assets (cash and other liquid assets) amply covering upcoming one-year liabilities, as well as long-term commitments. One reason I do like HUNT as a business is its low level of fixed assets on its balance sheet (13.59% of total assets). When I think about the worst-case scenario in order to assess the downside, such as a downturn or bankruptcy, physical assets and inventory will be hard to liquidate and redistribute back to investors. HUNT has virtually no fixed assets, which minimizes its downside risk.
HUNT currently trades at ØRE3.59 per share. At 206.16 million shares, that’s a ØRE742.17M market cap, which is in-line with its peers based on its industry and adjusted for its asset level. Currently, it’s trading at a fair value, with a PB ratio of 1.28x vs. the industry average of 1.04x.
HUNT is a fast-fail research for me. Good companies should have good financials to match, which isn’t the case here. Given investors have limited time to analyze a universe of stocks, HUNT doesn’t make the cut for a deeper dive. For all the charts illustrating this analysis, take a look at the Simply Wall St platform, which is where I’ve taken my data from.