Hunting Share Discussion Threads

[aublune] 19/1/2022 22:09

www.communityimpact.com/austin/pflugerville-hutto/business/2022/01/13/cumberland-additive-to-relocate-and-expand-within-pflugerville-and-invest-96m-per-economic-agreement/

Link to good news on cumberland additive which is a Hunting investment

[aublune] 19/1/2022 09:25

What was the p/book in January 1st 2020?

[aublune] 18/1/2022 20:12

WTI crude oil just hit a new record price level since all the way to 2014

[aublune] 18/1/2022 06:48

Brent oil prices top $85, the highest level in seven years, as geopolitical tensions flare in the Middle East

[flyfisher] 15/1/2022 06:21

Strong rig count figures.

[stupmy] 13/1/2022 13:43

I struggle not to bank jw. I believe it's got further gains to make. Just speculatively hoping it'll pull back to form a cup n handle. If it does, I'll buy some back, if not I'm happy to start the year with a good profit.

[jw330] 13/1/2022 13:14

up 50% in a month is a great return but if you look at the stocks history when the thing went up it hardly had any pull backs before doubling so I'm going to hold on until at least it reaches book value I think. GLA

[stupmy] 13/1/2022 12:50

I've closed the last of my positions around 220.5. Took a while to come good, but it's been a good trade. Reason for closing is very speculative. Beautiful move up from a rounded bottome formation. I'm just wondering (hoping) whether we'll get a pull back from the 222 area as the price back tests the break down from the rising TL support (Oct 2nd 2021, Aug 20 2021, Sept 20 2021) that occurred on Oct 13 2021. You could argue that the back test already happened on Oct 20th 2021, but I've taken my profit and would be very happy to buy some back if the price backed off now. Areas I'd watch for would be 203, 169 and 144/145. The way the share price has risen though, it's not that easy to believe I'll get my re-entries. GLA

[ldrcvm] 12/1/2022 12:21

On the face of it HTG is ridiculously cheap, valued at less than net currenr assets (£377m)
The key to it is imo the shiftability and true value of the stubbornly high inventory which makes up the bulk of the above (£197m)
However shareprice at 215p discounts a chunky write off which may well not happen.


Given sentiment in the energy space right now I think we could see it trade much higher.

[pireric] 11/1/2022 18:32

Thanks for posting, philanderer.

Strength in both the oil and gas markets is probably helping sentiment alongside broad sector repositioning. Looking at the US players, 2022 has got off to a strong share price start for most of them on optimism that production needs to come back and oil prices are headed higher.

Stating the obvious, US Feb 22 Natural Gas Futures are at >$4.1 at the moment which remains very elevated in the context of history. Likewise, crude oil has been showing remarkable strength after the Omicron induced dip, and WTI on Feb 22 contracts is back above $81. That is higher than any levels seen during 2018.

The missing piece of the puzzle for the oil services companies is seeing that translate into capex and also for Hunting, US production growth. I'm a believer in current pricing stimulating production output and and a loosening of the capex belt, and the need for energy complex stability and production (Biden is basically asking for it).

So the less obvious was data released this evening from the EIA. They are forecasting that US oil production increases quarter on quarter right through to the end of 2023 and for US crude production to exceed 2019 levels in 2023. In 2021 the lower 48 states saw production falls and the gulf of mexico saw production increases, but the net effect of both was -0.12mmbls. Into 2022, they expect a flip to +0.64mmbls.

I think all of this is supportive of the demand setup that HTG has in 2022 and I think there's real potential for existing broker estimates (on revenues and profits) to be significantly beaten if the current supportive outlook holds. They've already seen that start to come through in the backlog (in the last trading update).

As the Telegraph Questor article points out and as we have discussed here already, when you're at a fraction of tangible NAV, I think only the second derivative has to change for the stock to work extremely well and to really start to close the gap to TNAV. That has maybe already started. Perhaps the stock will need a little bit of time in the very short term to chop around a bit and hopefully form 200p as a new base.

Eric

[hollow88] 11/1/2022 16:41

walked through 200 today so perhaps looking at 220? before significant tranche of profit-taking, ready for next step up. Telegraph article no doubt helping.

[philanderer] 11/1/2022 14:03

Questor: it sells to oil firms and is losing money – but Hunting could prove a worthy find

Questor share tips: a discount to the value of its assets and a 3.5pc yield will appeal to brave contrarians

Questor says: buy

Ticker: HTG

Share price at close: 191.8p

[stemis] 04/1/2022 11:52

Bought Titan for $775m, current market cap $379m. I suppose you can read that either way. Bought at 24 x operating profit and 4.9 x revenue !

[aublune] 02/1/2022 15:33

Titan by itself is worth much more than the market cap of the entire company IMV. When did they buy Titan?

[stemis] 31/12/2021 17:39

Slightly odd transaction/disclosure. According to the accounts at 31 December 2020, Hunting Energy Services (HES) had inventory of $48.7m and an intercompany loan with Hunting of $25.7m. Net assets were $26.9m. However all those figures are 12 months out of date.

Since Huntings overall trading hasn't improved since 2020 perhaps it's reasonable to assume that HES incurred a similar loss to 2020, reducing NAV to ~$19m? The NAV if the 40% Hunting are buying would be ~$8m. Stock of $48.7m is significantly higher than the stock used during the year, which was $22.1m, so I'm guessing there's an element of stock that's surplus and that's what they've sold - maybe $36m worth?

[pireric] 31/12/2021 11:54

Interesting news, and just deciphering it.

Restructuring of the European OCTG business. Hunting's 60% subsidiary is buying out its minority partners (Marubeni-Itochu Steel/Tubulars).

As part of the deal, the minority partners are also buying OCTG inventory that the JV currently holds.

The net net of the two is that Hunting will receive a net cash inflow of $27.7m and gain access to the remaining 40% of the OCTG business (in 2020 delivered revenues of $35.3m, loss before tax of $8.5m and gross assets of $60.7m). I imagine the components are that HTG is perhaps paying somewhere around $10m for the stake, and then MI is acquiring $40m odd of unsold inventory, which together gets to the net $28m or so.

"The transaction provides Hunting and MI the opportunity to focus on their respective core competencies of providing world-leading threading, manufacturing and in-field support and OCTG supply and trading."

Looks a good enough deal for Hunting at face value.

"The restructuring of our European OCTG businesses has generated a $27.7m net cash inflow and has released significant capital for the Group to deploy into new business opportunities. Our operations in Aberdeen and Velsen-Noord will continue to support clients operating in the North Sea and Europe and we look forward to continuing our close relationship with MI."

[jw330] 31/12/2021 11:51

encouraging rns for the end of the year. 2022 could be a good year for hunting. Just waiting for a technical breakout here for a true rally in the share price.

[spooky] 30/12/2021 14:02

Great post.

[pireric] 30/12/2021 12:22

SteMiS

Oil capex is going to be a better correlator I suspect as there's usually a lag on that against oil prices (6-12 months). A lot of oil producers in the US were also hedged in 2021 that meant their recovered oil price (and thus budgeted spend) was far lower than the headline oil price averages (maybe $10-15 lower than headline). The much easier way to see it is just to look at revenues versus fixed costs (compared to prior years) rather than just pure profit levels against what you'd expect for the point in the cycle. I expect 2022 to be a good year for product pricing, with initial rounds already kicked in by HTG and I suspect a lot of room in 2022 on OCTG in particular.

Unless you're planning to hold this through a cycle, then a 50% discount to NTAV only really makes sense if you believe they won't get back to decent positive cash generation again in the next cycle (18/19 u/ebit levels much higher than $45m and if I take underlying PBT averaged 2010-2020 the answer is much higher at $72m).

Again, we can draw implications from the share price on what the market is implying, but was the market really implying a very different 5 year future for HTG just 6 months ago at 250p+? I doubt it. I heard a lot of the same arguments on Wynnstay #WYN when the stock was way below TNAV at 225p last year and how it was a low margin low quality stock. But at least in my opinion when you're buying stocks which are so far below intrinsic value then all you need to see for them to work very well is a second derivative improvement, and the December trading update shows the first signs of that. I'm not convinced the market thought Wynnstay's assets were overvalued. It was a smaller company so perhaps some inefficient market hypothesis happening, but it was a mix of institutional shareholder movements and prevailing trading trajectory (was weak; HTG has also revised down expectations a couple of times in early/mid 2021 on the back of a slower capex recovery cycle so weaker than anticipated trading earlier in 2021 is a fair comment).

P/sales and P/book are far below any industry competitors which I think stacks the potential for corporate action (if it stays here for an extended period of time) in our favour. We also have the Hunting family owning 16% of the shares, which I consider a positive factor.

We will wait and see if the write-downs are excessive. I suspect there may have been some overprovisioning. I'm buying this for an upcycle so that doesn't factor into my forward thinking and those writedowns have naturally been non-cash in nature against one of the most challenging oil periods in decades. I also think oil services stocks and oil stocks in general are pretty hated at the moment in the investor community, which is probably a good thing if 2022 oil capex does rebound well.

Eric

[spooky] 30/12/2021 11:50

Thanks pireric. I think it goes without saying that you probably wouldn't be interested in HTG if you expected oil/energy prices to fall. I am proceeding on the basis that energy pricing will remain around current levels or rise. The bottom is in for the sector IMO and i expect future news flow to confirm that. I have established an initial position and added to that yesterday. May take a few months to play out but assuming i am correct about energy pricing then the shares are only going one way, once again IMO.

[stemis] 30/12/2021 11:49

Whilst it's true that HTG is a substantial discount to NAV (indeed it is a discount to the value of cash plus net current assets; mkt cap at 159p = $354m, cash + nca = $437m), my concern is it's ability to make profit going forward.

I've plotted historic profit going back to 2013 against average oil price and there is a very strong correlation. However with wti having averaged around $65 this year they should be making, maybe, ~$80m operating profit. But they are losing about $40m.

Over the last 9 years they've averaged an operating profit of just $45m. However they've also charged an average of $23m of exceptional costs (excluding intangible write downs/amortisation).

It's kind of hard to get away from the view that the discount to net assets is because the market thinks the assets are overvalued...

[pireric] 29/12/2021 23:23

Spooky,

I think the most realistic bear case for the next 12 to 18 months is that the macro environment goes on another dwindle downwards (for whatever reason) and takes energy prices with it. Every sign points to 2022 being a year of decently to materially higher capex from oil and gas companies (even reflected in Dallas Fed energy data released today) because of significant underinvestment and given high decline rates of shale wells. However, if there was a macro downturn, no doubt that this could continue to run at 20-30m dollar per annum losses for another 2 years. If that happens, there's no real reason to own this now, despite the huge discount to tangible nav, unless you think they'll get acquired for the revenue or asset base. I don't think it has the capability of declining 30% here in e.g. 3 months, but this scenario could see it just gradually slide over time.

I've obviously taken the opposite view. Energy is not dead and will not be for decades. Leading indicators for more spend are already clear (look at rig counts, let alone Hunting's own backlog). Even on a depressed 2019/20 energy market, the business generated £70m of underlying profit before tax and in peak energy years has done well over £100m. It's a high quality business with good products (reflected in double digit ebit margins) but is cyclical to energy market moves. My personal view is that oil and gas capex will rebound strongly in 2022, partly on supply side necessity and Hunting will rebound to solid profitability (not expecting £70m). If that happens, the current 50% discount to only tangible NAV (which is historically low), which has already been written down (some good provisioning in place) will prove very unjustifiable, and thus a rebound well into the 200-250p range (and maybe higher) is likely. I also think when you're at such depressed valuations there is absolutely potential for corporate or private equity activity.

Let's also be clear. We can have whatever view we want to on where oil is in 10 years time. I'm not sure it should really rule out investment opportunities completely. I'm not sure investors were exactly bullish on the very long-term outlook for oil in late 2020 yet from trough to peak the share price went from 145p to 290p. Half the problem is that UK investors want to compare this to oil services companies like Petrofac, Gulf Marine Systems, and Wood, which are completely different (and far lower quality) beasts in my view and where there is not even close to as clear asset backing.

Eric

[spooky] 29/12/2021 16:38

Thanks for your input. I think your points are completely valid. Just trying to see if there is anything else floating around out there in investors minds. Valuation of inventories may be worth some investigation IMO.