Hunting PLC (LON:HTG), the global precision engineering group, has announced a further major subsea order and also issues a Q3 2023 trading update.
Highlights
· $59 million order for titanium stress joints received in October 2023.
· Group EBITDA of $75 million, with the result in Q3 2023 similar to Q2; and 2023 full year guidance remaining unchanged at $96-100 million.
· Total cash and bank / (borrowings)1 of $(68) million at quarter end. Year-end position now anticipated to be broadly zero.
· $511 million sales order book as at 30 September 2023.
· Launch of the Hunting 2030 Strategy.
· Opening of the Company’s joint venture threading facility in Nashik, India.
· Robust demand across most product lines.
· Outlook continues to be positive, driven by international activity.
Jim Johnson, Chief Executive of Hunting, commented:
“We are delighted to have received another major order for Hunting’s titanium stress joints. The technology is gaining further acceptance for application to offshore production vessels and we are pleased to be supporting clients with technology which delivers safer and faster cash flows for them.
“The performance of the Group has been encouraging in the period driven by strong international demand for oil and gas, underpinned by an increasing global focus on energy security and continued economic growth. Each of Hunting’s product groups continues to execute on its strategy of growth, as we outlined at our Capital Markets Day.
“Our diverse product platform plays to the long-term investment themes of the industry, including strong growth in offshore work and international activity levels growing at a robust rate.
“We are also pleased to note that commodity prices are showing resilience. This strength will continue to deliver commitments to new drilling and completion activity as we enter 2024 and positions the Group strongly going forward.”
Major Subsea Order
The Company is pleased to announce that in October 2023 it received a further large order for its titanium stress joints for a client operating in South America. In line with the Hunting 2030 Strategy, the Group has continued to pursue growth opportunities in the offshore segment of the global energy market, with today’s announcement confirming the continued success of Hunting’s stress joint technology for application to Floating, Production, Storage and Offloading facilities. The $59 million order will be completed over the next 28 months with revenue being recognised over this timescale. With this new order, the Group’s total sales order book has increased from the position reported at quarter end.
Q3 Trading Update
Hunting’s trading performance during Q3 2023 has continued its positive momentum, as international drilling activity continues to drive demand for its major product lines. Activity in South America, the Middle East and Asia Pacific markets continues to be high, offsetting some softness seen within the North American onshore market. Year-to-date EBITDA of $75 million reflects a near doubling compared to the same period in 2022, as the focus on energy security and global economic growth increases. Hunting’s EBITDA result in Q3 2023 is similar to Q2 and well ahead of Q1 2023 respectively, demonstrating the broad-based strength of the Group’s diverse product portfolio. Group EBITDA margin has also exceeded 11% in the quarter, with pricing and demand remaining firm.
The Group’s balance sheet remains strong, with net assets as at 30 September 2023 of $865 million. Working capital increased by $28 million over the quarter as investment to meet secured orders continued, resulting in total cash and bank / (borrowings)1 of $(68) million as at 30 September 2023.
Management believes that cash generation will accelerate in the balance of the year and going into 2024, with a cash and bank / (borrowings)1 position at year-end now anticipated to be broadly zero, due largely to new orders received in the period, coupled with order completions and payment timings.
The 2023 interim dividend of 5.0 cents per share will be paid on Friday 27 October 2023, which will absorb $8 million. Capital expenditure for the full year is also now anticipated to be c.$35 million.
In summary, the Board remains comfortable with current EBITDA expectations of $96-100 million as sales momentum and profitability are sustained.
Product Line Overview
The Group’s global OCTG, Premium Connections and Accessories businesses have reported a strong performance in the year-to-date. Well completion activity in South America has delivered robust growth in the year, as activity in Guyana and Brazil remain strong. In Asia Pacific, tender activity in China, India and the Middle East is also reporting good momentum.
Hunting’s Perforating Systems business has reported headwinds during the past two trading quarters due to the reducing North American onshore rig count; however, EBITDA results remain broadly similar to 2022 as margins remain solid due to the prevailing product mix in the year-to-date.
Within the Advanced Manufacturing product group, the Dearborn business has reported strengthening results in the year, with pricing and margins increasing. Non-oil and gas sales continue to increase.
The Subsea Technologies product lines have reported strong results during the quarter, with demand for hydraulic valves and couplings delivering record results within the Stafford business, supported by ongoing activity in the Spring business as orders for titanium stress joints continue. New orders for Flow Access Modules within the Enpro Subsea business have also accelerated in the quarter.
Other Manufacturing, which includes well intervention, well testing and trenchless products also report good results.
Segmental Overview
The Hunting Titan operating segment has reported flat results in the year-to-date, compared to the prior period. This result demonstrates the strength of the segment’s product offering and its steady pricing and margins, despite the reduced US onshore rig count. International sales continue to improve, in line with its strategy to grow its presence in South America, the Middle East and Asia Pacific.
The North America operating segment has delivered very strong results, driven mostly by the OCTG and Advanced Manufacturing businesses. As noted above, activity in South America has been extremely strong in the year given the drilling success in Guyana and the long-term development commitments made by major operators in the period.
As noted above, the Group’s Subsea Technologies businesses have also reported strong increases in activity in the period.
The EMEA operating segment continues to complete work for Tubacex for Brazil, supported by growing momentum in the Middle East.
Hunting’s Asia Pacific operating segment also reports strong tender activity in the period, and will benefit from the new threading facility in Nashik, India, which opened in September.
Hunting 2030 Strategy / Capital Markets Day
At the Capital Markets Day in September 2023, Hunting’s management set out its strategy for growth to 2030. The Group plans to deliver c.$2 billion of sales per annum by the end of decade, at EBITDA margins in excess of 15%.
Key areas of opportunity include growth of its OCTG businesses, driven by strong international oil and gas demand and the high-growth energy transition markets of geothermal and carbon capture, with an increase seen this quarter for geothermal tenders for delivery in 2024.
Hunting also sees strong growth in its Subsea businesses as offshore investment by the global industry is projected to double throughout the remainder of the decade.
The Group also plans to accelerate its non-oil and gas sales, predominantly through its Advanced Manufacturing businesses, as it targets the high-end markets of aviation, commercial space, defence and medical.
The above strategy is underpinned by a focus on delivering strong free cash flow to the end of the decade and an increasing dividend distribution.
Date of Next Trading Update
The Group’s next Trading Update is scheduled for Wednesday 10 January 2024.
