After a big stumble for the shares earlier in 2022 now is an opportune time to snap up oil services business Hunting (HTG) given an encouraging outlook driven by robust commodity prices and a push for energy security.

Hunting derives more than 70% of its revenue from providing equipment and services for use in drilling oil and gas wells. Its flagship product is its Titan perforating gun, a device used to penetrate wells in preparation for production.

The company’s fortunes are heavily tied to the rig market in the US, where the latest figures from Baker Hughes (BHI:NYSE) show the country’s rig count to have increased more than 50% in the past 12 months.

There is a good chance the company will see a strong earnings recovery into 2023 with countries looking to address the energy supply issues created by Russia’s invasion of Ukraine. Notably, greater exports of US natural gas are likely to act as a driver for North American drilling.

Evidence of increased demand for Hunting can be found in a book to bill ratio (showing the ratio of orders received to units shipped) for the first half of 2022 of 160%, its highest level in several years.

In Asia Pacific the company recently secured an $86 million contract with Chinese state operator CNOOC for its OTCG products (tubes used in oil and gas production) – its largest award in this space for some time.

Chief executive Jim Johnson told Shares the company is seeing clear signs of increased spending on subsea operations after a long period when investment had been scaled back.

The shares do not look cheap at first glance, trading on 18.7 times Canaccord’s forecast 2023 earnings per share. However, this ratio drops to 13.4-times for 2024, reflecting the strong growth trajectory.

In the long term the company is looking to expand its technology and expertise into new markets to reduce its exposure to a cyclical and structurally challenged oil and gas sector. This process will be supported by a solid financial position with Hunting sitting on net cash of $86 million as of 30 June 2022.

As Canaccord analyst Harry Brooks observes: ‘Hunting benefits from a robust net cash balance sheet and impressive progress in reducing its working capital levels over the past three years.’ He also highlights the likelihood that earnings will go positive again in the second half of this year and stay that way for an extended period.

Finally, Brooks says Hunting’s earnings will be led by recovering oil and gas prices and investment; and are insulated from weak end-consumer sentiment.

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