This oil equipment and services company is set for full-throttle growth.
I'm always sceptical of companies that make big acquisitions. All too often the owners of the acquired company end up doing better out of the deal than the shareholders of the company doing the takeover.
However, I'm confident that oil equipment and services company Hunting (LSE: HTG), which has made transformational acquisitions in the past year, will reward shareholders with full-throttle earnings growth.
Hunting is a FTSE 250 company, capitalised at £1.2bn, with a history of repositioning itself into higher-growth areas by divesting some of its businesses and acquiring others. Indeed, Hunting was originally a shipowning firm when it was founded in 1874.
In 2008, Hunting disposed of its Canadian midstream business for over £600m with the aim of metamorphosing into 'an industry challenging upstream energy services company'. It began picking up selective assets through 2009-10, and then invested aggressively in a spate of acquisitions in 2011.
Hunting's biggest buy was Titan Group for £475m and it made a further three acquisitions totalling £90m. To give an idea of the scale of earnings enhancement of this transformational series of investments, Hunting's previous-year EBITDA (earnings before interest, tax, depreciation and amortisation) was £68m; I calculate the annualised EBITDA of the four acquisitions as £69m.
In a trading statement in January, Hunting announced that it expected earnings for the year ending December 2011 to be above analysts' expectations. The consensus pre-tax profit forecast has since risen from £67.6m to £68.6m, with earnings per share (EPS) forecast at 34.7p.
In 2012, Hunting will see a full year's contribution from the acquisitions. The analysts' consensus is for EPS of 52p, rising to over 63p in 2013 – representing 16 and 13 times earnings, respectively, at the current share price of 830p. Those multiples look good value given that the forecast earnings growth in the two years is 50% and 20%.
Hunting will be announcing its full-year results this coming Thursday. Management said in January that they are comfortable with the business outlook for 2012. With good momentum in the business, I think there's the potential for an upside surprise when management gives further guidance on 2012 trading in Thursday's results.
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> G A Chester owns shares in Hunting.