Hunting to be hit by slower capex recovery at clients, Canaccord says

A slow recovery in capital spending by the oil field services majors will have a greater than expected impact on Hunting´s ability to rely on them to drive a pick-up in its pricing, hitting its margins hard in the medium-term and wreaking havoc on its earnings per share, analysts at Canaccord Genuity said.

Third quarter announcements from clients such as Schlumberger and Halliburton point to only a slow recovery in their capex.

On top of that, the 'drop-though' from sales growth to growth in earnings before interest and taxes was now estimated to be in a range between 20-30%.

Hence, Hunting was now projected to only recover a double-digit EBIT margin in 2018, analyst Alex Brooks said in a research note sent to clients.

Brooks lowered his estimates for the oilfield services outfit earnings per share in 2015/201672017 by 63%,28% and 30%, respectively, with smaller impacts therefater.

The broker said it remained a 'seller' on valuation grounds. A write-down on the good-will linked to its 2011-2 acquistions ay year-end was likely, so relying on price-to-book multiples was "challenging" and free cashflow, dividend yield and earnings multiple all signalled the stcok was expensive.

The stock´s price-to-earnings multiple would rise to 30 in 2016 before falling to 13 in 2017.

One piece of good news was that the company had been "broadly" breaking-even year-to-date in terms of free cash flow, the analyst said.

Canaccord lowered its target price for the shares to 325p from 400p and stayed at 'sell'.