James Moore: Worth tracking down - Hunting is in right place at the right time


Our view: Hold

Share price: XP (-XP)

Having set aside any scruples and looked at the pure investment case for big oil, it's worth examining the companies that help to get the stuff out of the ground. The argument for these metal bashers, consultants and project managers is just as powerful. Their share prices are also less directly linked to the oil price, being as much dependent on their ability to pick up work. Of which there is a lot about.

The aptly named Hunting showed this yesterday, capping a buoyant reporting season for the sector. Its profits soared by 70 per cent, boosted by it successfully bringing down four acquisitions. Pre-tax profits before one-offs came in at £80m against a consensus forecast of £75.3m. That sort of performance is not to be sniffed at.

Hunting is in the right place at the right time. Its main business is the construction and maintenance of wells, which has had a shot in the arm from the pick-up in activity in the Gulf of Mexico. It has also benefited from the increasing interest in extracting oil from shale in the US. At 15.5 times forecast 2012 earnings, yielding 2.4 per cent, the shares are now looking pricey. But they are worth holding for the long term.

Amec has long been a favourite of this column, and is one of The Independent's 10 to follow for 2012. The shares have gained around 20 per cent since we tipped it at 907.5p at the start of the year.

They have slowed down a bit recently, but even so, at 13.6 times forecast earnings for 2012, with a prospective yield of 3 per cent, they are doing no more than trading in line with the sector.

Amec was chosen because it looked undervalued, partly as a result of concerns that it would use its formidable £500m cash pile to overpay for an acquisition or three rather than returning the cash to shareholders. This was despite the fact that the company never looked likely to over-pay for something that wasn't worthwhile.

Last month it announced a £400m share buyback alongside profits up 12 per cent and a 15 per cent hike in the dividend. Amec is still on the hunt for deals – and may borrow a bit to finance them. But with no debt on the books, there are no grounds for concern as long as the company retains a conservative approach to its balance sheet. Even now, it still doesn't look overpriced. It is still a buy.

The sector heavyweight is Petrofac, which trades on a similar multiple to Amec but finished the year with a reduced order backlog of $10.8bn ($6.8bn) from $11.7bn. Petrofac explains this by dint of the fact that its onshore business was focused on execution this year, such as handling its $3.4bn contract in Turkmenistan. This year it says it will be more active. Petrofac thinks it has a solid pipeline of opportunities with up to $40bn worth of work out there (although it will only win a fraction of that).

The company also recently announced an alliance with Schlumberger of the US, the world's largest oilfield services company. The aim is to open the door to bidding for bigger projects.

Petrofac has an interesting model, having struck a deal with the Mexican state-controlled energy group Pemex, which will pay Petrofac a "prize" of $5 a barrel if it delivers production over and above predicted rates. The group is looking to strike similar deals. It appears that they are out there.

Competition in the Middle East is tough, although the numbers look good. Revenue rose by a third to $5.8bn, and net profit, excluding one-off gains, jumped by $433m to $539m. This is a hard one to call. Petrofac isn't cheap. But jump in if the shares show signs of weakness.

Aberdeen-based John Wood is another tough call. It has been just over a year since this column last looked at the company, when a buy at 643p was advised after the group produced figures slightly ahead of hopes. The shares have performed acceptably and earnings were better than had been expected this year. But there was a sting in the tail, with problems at its well maintenance unit continuing.

The Wood Group PSN production services business accounts for nearly 40 per cent of group earnings. However, it was hit by losses of about $30m on projects in Colombia and Oman, which took the gloss off a strong performance from the North American and North Sea businesses. Some of the problems are likely to persist this year.

The shares are looking no better than fair value at 14 times earnings, with a forecast yield of just 1.5 per cent. The company has just sneaked into the FTSE 100 though, which may offer a short-term boost. A very tough call but this might be an opportunity to take profit.

Start your day with The Independent, sign up for daily news emails
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Day In a Page

Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor
The ZX Spectrum has been crowd-funded back into play - with some 21st-century tweaks

The ZX Spectrum is back

The ZX Spectrum was the original - and for some players, still the best. David Crookes meets the fans who've kept the games' flames lit
Grace of Monaco film panned: even the screenwriter pours scorn on biopic starring Nicole Kidman

Even the screenwriter pours scorn on Grace of Monaco biopic

The critics had a field day after last year's premiere, but the savaging goes on
Menstrual Hygiene Day: The strange ideas people used to believe about periods

Menstrual Hygiene Day: The strange ideas people once had about periods

If one was missed, vomiting blood was seen as a viable alternative
The best work perks: From free travel cards to making dreams come true (really)

The quirks of work perks

From free travel cards to making dreams come true (really)
Is bridge the latest twee pastime to get hip?

Is bridge becoming hip?

The number of young players has trebled in the past year. Gillian Orr discovers if this old game has new tricks
Long author-lists on research papers are threatening the academic work system

The rise of 'hyperauthorship'

Now that academic papers are written by thousands (yes, thousands) of contributors, it's getting hard to tell workers from shirkers
The rise of Lego Clubs: How toys are helping children struggling with social interaction to build better relationships

The rise of Lego Clubs

How toys are helping children struggling with social interaction to build better relationships
5 best running glasses

On your marks: 5 best running glasses

Whether you’re pounding pavements, parks or hill passes, keep your eyes protected in all weathers
Joe Root: 'Ben Stokes gives everything – he’s rubbing off on us all'

'Ben Stokes gives everything – he’s rubbing off on us all'

Joe Root says the England dressing room is a happy place again – and Stokes is the catalyst
Raif Badawi: Wife pleads for fresh EU help as Saudi blogger's health worsens

Please save my husband

As the health of blogger Raif Badawi worsens in prison, his wife urges EU governments to put pressure on the Saudi Arabian royal family to allow her husband to join his family in Canada