Barclays gave a boost to Hunting PLC (LON:HTG) on Wednesday, double-upgrading its rating for the oil services group to ‘overweight’ from ‘underweight” on valuation grounds.
The global bank left its target price for the FTSE All-share listed stock unchanged at 260p, with the shares currently trading at 150.60p, up 11% on Tuesday’s close.
In a note to clients, the Barclays analysts said: “Hunting has faced difficult market conditions and been exposed to the collapse in US onshore activity. As a result, its stock has fallen by 68% ytd, underperforming the sector by 40%.”
“Yet cost savings and a solid balance sheet mean that it remains cash positive and is trading at a 30% discount to its inventory plus net cash and at a 40% discount to its working capital - a wholly inappropriate valuation level, in our view,” they added.
The analysts noted that the company even felt confident enough to re-introduce a dividend at the mid-year stage.
They said: ”Yes, a market downturn could lead to a repricing of inventory, but even at half price, the share price is covered. More importantly, our US colleagues have recently published a pair of notes looking at US activity, seeing completion activity improving into the year-end and forecasting completion activity to double by the end of 2021F, significantly ahead of what we factor into our Hunting numbers, which are based on a prudent stabilisation in 2021.”
“Even on these numbers, we see over 100% upside potential to the stock. With shale-related equipment manufacturing business sales currently going through at 1x EV/Sales, and Hunting trading on 0.3x, we consider the stock to be materially undervalued and question whether the company should be using significant upcoming cashflow to look for bolt-ons or buy back its own shares,” the analysts concluded.