Goldman Sachs removes Hunting from 'conviction list' on muted US outlook

Hunting shares gushed lower on Tuesday as Goldman Sachs removed the stock from its Conviction List and cut the price target to 686.4p from 774p, but kept it at 'buy'.

It said the removal was driven by its US oil services team’s downward revision to US onshore drilling activity levels to which Hunting is geared. "Whilst we still forecast revenue and profitability improvement, we now expect it to be more muted," GS said, adding that the US accounted for 64% of full-year 2016 revenue.

Goldman noted that since being added to the Conviction List on 14 February 2017, the shares are up 0.4% versus the FTSE World Europe up 7% and its coverage down 14.1%. It attributed this underperformance versus the market to oil price volatility with which it is correlated.

Still, the bank remains positive on the stock, saying profitability has reached a trough and there is now balance sheet flexibility following the equity placement in the second half of last year. It said Hunting delivered a solid first-quarter 2017 trading update at which it noted a strong pick-up in activity levels in the US and saw EBITDA back in positive territory.

"Despite our more cautious view on US rig count progression, we still believe Hunting’s profitability will steadily improve from a trough in 2016, turning positive EBIT in 1H18."

In addition, it said the placing should allow the group to increase inventory levels and capture growth opportunities.

Goldman argued that Hunting screens as a potential M&A target under its framework, given the breadth of its portfolio, which encompasses products serving all three stages of a well life cycle: construction, completion and intervention. "We continue to reflect this in our price target with an M&A component."

At 1550 BST, the shares were down 3.2% to 553.50p.