UBS hikes target for Hunting on improved cost structure in US, "solid" results

Hunting's first half 2018 sales had come in just 1.0% ahead of the Swiss broker's forecast, but operating profits, in terms of its earnings before interest, depreciation and amortisation had been 13.0% better-than-expected - proof of its improved cost structure in the States.

That, UBS analysts Amy Wong and Jon Rigby said, was proof that the company should be able to deliver "structurally higher" margins than in the last cycle.

Other key takeaways from its first half numbers included management's confidence in their ability to 'pass-on' increased costs from tariffs and a return of pricing for its premium H-1 perforating gun to peak levels, they said.

The broker stuck to its call for a 10.0% increase in sales over the back half of 2018, but bumped-up its estimate for operating margins for the same period from 16.0% to 16.5%.

In turn, it marked up is forecast for the firm's 2018 EBITDA by 11% and for 2019 and beyond by 4.0%, which it said would result in an 18.0% boost to Hunting's earnings per share in 2018 and of 5.0% from 2019 forwards.

As a result of all of the above, it jacked-up its target price for the shares from 850.0p to 900.0p, albeit while reiterating its 'neutral' stance on the stock.

As an aside, UBS noted management's expectation that US onshore activity would remain stable as operators reallocated budgets from the Permian basin to others in the face of what were expected to be transient issues there.

The Permian accounts for roughly 40.0% of US oil rigs in operation.