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To maintain a profitable long-term investment strategy, I often turn to FTSE 250 energy reserves.
Several mid-cap oilfield and energy services companies offer potential gains in share valuation along with dividend income.
But one that really catches my attention is Hunt (LSE: HTG).
The company is loosely placed in a mid-cap energy group, given its huge operational footprint serving the sector. But Hunting is not even a producer like Port energy not even a contractor like petrofaceven if you can offer engineering products to both.
In fact, a bottom-up analysis of its business plans and product set points to customer reach far beyond the energy industries. This bodes well for Hunting’s long-term future and may mean there is significant growth potential from its current share price.
From the bottom of the ocean to infinity and beyond!
For starters, the company’s three “core” commercial product segments – resource well construction, completion and intervention and its Titan suite of products – have many established customers around the world.
Its decades-old Oilfield Tubular Products (OCTG) business (casings, pipes and ducts used for hydrocarbon extraction) is currently in a cyclical boom, amid rising oil prices. relatively higher energy. The company’s estimates point to EBITDA at the end of 2023 of $99.5 million, rising to $130.6 million in 2024 and $163 million in 2025.
But it’s from Hunting”medium-term growth strategy until 2030” – based on maintaining your “strong non-oil and gas revenues” Supported by “strong energy market“Revenues (the kind you’ll see in 2023), that makes things really interesting for me.
Its suite of precision-engineered products now extends from the submarine to space. This sees Hunting partner with Elon Musk’s SpaceX and Jeff Bezos’ Blue Origin to manufacture components for their rockets as conveniently as it does with oil and gas companies for their drilling operations.
At its recent capital market day in September, Hunting’s order book and tender book stood at $500 million and $1 billion respectively. This is a strong backdrop for the business and a look at future earnings.
Steady Management Matters
Hunting also benefits from an astute, pragmatic and practical CEO in Jim Johnson. In my various conversations with Johnson over the years, I always found him enthusiastically outlining paths to future-proof the company he joined 35 years ago and ultimately ascended to the CEO office in 2017.
That long-term strategic thinking is making Hunting products as critical to rockets as they are to platforms! Johnson’s steady hands are also overseeing a “inexorable direction of travel”to emerging markets that increase income. Recent moves include expansion in the Middle East and a joint venture in India.
With Hunting literally going to faraway places, to me this dividend stock looks undervalued by around 40%. This is based on valuing the company at £660m ($815m) or five times its projected 2025 EBITDA, compared to its current market capitalization of £480m.
Warnings apply. A drop in the price of oil below $70 per barrel could represent a drag in the short term. The current high interest rate climate and inflationary pressures will likely limit the share price’s medium-term upside potential beyond 450p. Income seekers may not be satisfied with Hunting’s 3% dividend yield.
But overall, I see more advantages than disadvantages and a company with a diverse product portfolio preparing for an exciting future. Therefore, I am inclined to buy more shares.
