Canaccord Genuity downgrades Hunting to 'hold'

Canaccord Genuity said following a rapid rise in Hunting's share price to roughly double its low in December 2021 and its view that whilst market conditions for oil services had improved in the short term, risks were now "much more evenly balanced".

Unlike the majority of its peers, Canaccord noted that Hunting has made only "limited progress" away from its upstream oil and gas roots, with non-oil and gas income still making up less than 8% of 2021 total revenues.

The Canadian bank expects Hunting to make acquisitions away from oil and gas in the next two years, likely in "technically adjacent areas" where it is already present, and also in digital.

"Whilst the group's balance sheet is in a robust cash position, we are sceptical that the market will price these potential acquisitions richly," said the analysts.

Canaccord also admitted that activity in Hunting's core markets was "notably improving" but cautioned that expectations had moved "remarkably quickly" and consensus was now for underlying earnings to beat $50.0m in 2022.

"Whilst we share this view, we note that in the past seven years, Hunting has achieved earnings above this $50.0m less than half the time; this is less a return to 'mid-cycle' and more a punt that the oil patch is going to be different this time," said Canaccord.

"We expect a robust 2Q update towards the end of this quarter; we nonetheless believe the shares are up with events."