Hunting PLC (HTG)
Hunting has received a record US$145m OCTG order with shipments to the Kuwait Oil Company expected to start toward the end of 2024. As a result, following an in-line Q1 update, EBITDA guidance has now firmed towards the upper end of the company’s existing US$125m135m range. We have raised our current year EBITDA estimate to US$131m (+c.7%) and by c.14% for FY25 due to this new business win.
New record OCTG order. This business win follows significant OCTG orders in H222 (US$80m+ offshore China for CNOOC) and H223 (US$91m Rajasthan for Cairn Oil & Gas, Vedanta Ltd), and underscores Hunting’s strong position and momentum in international markets. In context, FY23 OCTG revenue was US$396m with a US$222m order position at the year-end, while the Asia-Pacific region (predominantly OCTG product sales) reported revenues of US$154m with US$143m orders on hand at the year-end. Asia-Pacific operations will source casing products and thread Hunting’s proprietary SEAL-LOCK premium connection before shipping to the customer. This clearly represents a material business win and sustains OCTG activity at elevated levels. We understand that no material capex is required to execute this order over and above existing guidance. The group order book is lifted to US$665m (versus US$575m at the end of FY23) including this order.
Estimates increased for FY24 and FY25. We assume that Kuwait order shipments split roughly one third/two third between this year and next with a 20% EBIT margin contribution. Noting an expected Q4 shipment start, delivery and acceptance timescales could vary but this would be a timing issue only as the overall order is contractually firm. We will be in a better position to assess the impact on profitability around the end of FY24 once shipments are expected to be underway. We have made allowance for larger working capital absorption during the duration of the contract with an improved net cash position visible compared to our previous FY26 estimate.
Valuation: momentum to potentially drive fair value higher Following our upgrades
Hunting is currently trading on discounts of c.22% and c.35% on conventional P/E and EV/EBITDA metrics versus its peer group over our estimate horizon. Applying the peer group average P/E to our unchanged FY26 earnings generates a share price in line with our DCF-derived valuation (slightly higher at 434p, using US$180m as a long-term sustainable EBITDA level) leaving our existing 436p per share fair value unchanged at this stage. On our updated estimates, we note that FY25 estimates are currently higher than the (unchanged) following year; if momentum carries over into FY26 it would not only raise the earnings base for peer group multiple comparison, then it would also cause us to revisit achievable long term sustainable EBITDA inputs in our DCF modelling.
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