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.

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