Hunting’s Q3 update highlights positive developments with OCTG shipments and cash flow/funding, but Hunting Titan/Perforating Systems (PS) has not seen a trading improvement in H2 to date. Consequently, we have reduced estimates to reflect this, although we continue to expect the company to report good EBITDA progress this year and next.
H1 trading patterns continue into Q3. The first OCTG shipments to KOC have completed successfully. Allowing for this, the group order book is holding up well (at U$652m versus c.U$700m in H124) with other Product Groups – PS excepted – substantially on track with expectations.
Our Group EBITDA estimates are now c.7% lower for FY24 and c.12% down in the following two years. Revised FY24 guidance to U$123m-126m (from U$134m-138m) infers a strong Q4E supported by KOC shipments. Post revisions, our expectations are for EBITDA to increase by c.21% yoy this year and next.
The trading shortfall against prior guidance has not been at the expense of cash flow generation. Hunting ended Q3 with c.U$5m net cash (inferring c.U$15m net inflow in the quarter). Moreover, revised guidance is for an expected U$60m-70m year end net cash position. This is c.U$30m better than previously which we believe reflects greater clarity on the payment profile for OCTG shipments.
We are happy to retain our US$180m long term EBITDA as a DCF input. Hunting is trading in line with its peer group on current year earnings, but at a discount to our DCF modelling. Averaging these approaches gives a 397p/share fair value.
