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

Hunting

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
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

MBDA UK Ltd: Indirect Procurement Category Manager

Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee
World War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel

Max Brooks honours Harlem Hellfighters

The author talks about race, legacy and his Will Smith film option to Tim Walker
Why the league system no longer measures up

League system no longer measures up

Jon Coles, former head of standards at the Department of Education, used to be in charge of school performance rankings. He explains how he would reform the system