Hunting (HTG) 208p

Loss to date: 26.6%

We flagged the appeal of energy services firm  Hunting (HTG) at 283.5p in September 2022 as a means of playing a rebound in spending by the sector off the back of strong oil and gas prices. Hunting is particularly exposed to rig activity in North America.

WHAT HAS HAPPENED SINCE WE SAID TO BUY?

At first, our hypothesis proved on the money as in both operational and share price terms the company continued to demonstrate real momentum. In February, the shares hit a high above 350p, implying a gain on paper of around 25%.

However, the company’s full year results and accompanying strategy update on 2 March were poorly received and put the stock firmly on the back foot. In hindsight we should have reacted quicker to the shift in the company’s fortunes.

The numbers themselves were decent with revenue up 39% to $725.8 million and the order book increasing from $211.5 million to $473 million year-on-year. The dividend was up 13%.

However, Berenberg analyst Richard Dawson observed at the time that ‘the US rig count has declined year-to-date and faces headwinds to further growth, including labour shortages, supply chain constraints, lower gas prices and continued capital discipline’, prompting a 3% and 4% cut to his revenue forecasts for 2023 and 2024 respectively.

Falling commodity prices amid concerns about recession have also contributed to weaker sentiment.

Alex Brooks from Canaccord Genuity is worried that Hunting will make expensive acquisitions over the next two years to diversify away from oil and gas.

WHAT SHOULD INVESTORS DO NOW?

We’re cutting our losses rather than persevere. The outlook for energy prices is heavily tied to the current dampened global growth picture and without an uptick in the oil and gas markets it may be tricky for Hunting shares to rebound.

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