City remains in pro-Hunting lobby

Hunting shares are trading at a three-year low, a victim of the recent plunge in oil prices to below $80 a barrel. The company supplies the oil industry with drilling tools, casing, tube connections and other equipment, so it feels the pinch if oil companies stop spending. But there's a feeling in the City that the sell-off has gone too far, and that Hunting shares, a constituent in Interactive Investor's new Winter Portfolio look good value.

A lot of bad news is certainly already in the price, and Hunting boss Dennis Proctor says there's been no impact on customer demand from weaker oil prices. Activity in North America has remained strong, too, and although business is slow in Europe, Asia Pacific and the Middle East have both been positive.

"With their own capital investment programme on track for completion in the next nine months Hunting is looking robust in these difficult markets and remains my pick of the UK quoted stocks, although the current market will not give them any credit for a while," writes oil industry expert Malcolm Graham-Wood.

Of course, the longer oil prices remain sub-$80, the greater the chance of an impact on Hunting, and, as Deutsche Bank notes, "this feels very much in the rear-view mirror with what had previously looked set to be an 'all guns blazing' 2015 now more uncertain given the recent oil price decline." It adds:

Gyrations in the macro/commodity complex will inevitably drive the next move in the shares but we continue to like Hunting for the long-term drivers of spend in core markets, self-help tail-winds in 2015-16 and attractive valuation (10.3x full-year 2015 PE). On lower earnings our DCF-based price target is cut to 900p; 30% upside. We hence retain our BUY rating. The key risk is further weakening in oil prices.

At 690p, Hunting shares trade on just 10 times earnings estimates for 2015. Proctor says the overall outlook for this year is in line with management's expectations, but analysts have trimmed price targets given a lack of visibility for 2015. If the current slump in oil prices proves short-lived, a forward multiple of 12 seems more appropriate, implying potential upside.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.