UBS dampened down sentiment for Hunting Plc (LON:HTG) on Thursday, downgrading its rating for the mid-cap oil services group while raising its price target on concerns over US bottle-necks.
The Swiss bank cut its stance for the FTSE 250-listed firm to ‘neutral’ from ‘buy’ but upped its target to 850p from 800p, with the stock trading at 820.5p in mid-morning trading on Thursday, down 0.9% on the previous session’s close.
READ: Hunting shares up, expects full-year results to be ‘within upper-half of current market consensus’
In a note to clients, UBS’s analysts said: “While Hunting has clearly not seen a slowdown in its US business in 1Q, many of its peers (from bigger bellwethers and customers like Schlumberger to more direct competitors like Core Labs) have highlighted logistical bottlenecks (railway issues, sand shortages) disrupting their businesses.”
They added: “Hunting has limited forward visibility in its US onshore exposed businesses given the short cycle nature of its product sales which we think means it could still experience some of the issues its peers are even if there are limited signs of this so far.”
The analysts said: “Any transitional issues would be temporary but expectations are already high; the shares have outperformed the sector by ~25% over the last 3m and we estimate that the market is pricing in a normalized EBITDA of ~$220m (versus ~$150m when we upgraded the shares in March 2017 ).”
They concluded: “These fuller expectations mean that even a lack of consensus upgrades would likely be taken negatively at this point and so we downgrade Hunting to a Neutral.”