Shares in energy service provider Hunting rose over five per cent in morning trading despite announcing falling revenues and loss-making operations for the first half of 2016.
Markets responded positively to the news of a reduction in Hunting's cost base and an interim financing arrangement that it is hoped will give the group sufficient breathing space in the short-term.
Revenues for the six months to 30 June 2016 halved from $464m (£349m) to $228m and earnings fell from positive ebitda of $44.1m in 2015 to a loss of $29.5m.
Cash balances have been boosted by better working capital management, in particular stock levels have been reduced so that £42m of cash can be realised.
In addition, tax losses were realised and cashed in, benefitting the company to the tune of $29.5m.
The focus on better cash management meant that despite the losses, net debt was down from $111m to $88m.
Why it’s interesting
Andrew Whittock of Liberum was fairly downbeat on the results but the reason for the share price rising is founded on the balance sheet.
"Financial results were well down on 2015 although the balance sheet remains under control," he said.
5 September 2016 @ 11:45amHunting (HTG)
With the downward pressure on oil prices, Hunting has taken a knife to business costs and this appears to be realised through the cash savings. Headcount is almost half that of December 2014 levels (down 46 per cent) and the group has closed three manufacturing facilities and seven distribution centres.
"The decrease in activity levels has been dramatic and Hunting management has taken actions to reduce headcount and operating costs to align to the current market environment," said Whittock.
The group has avoided any precipitative action from banks as it continues to revise the terms of its revolving credit facility (RCF) – similar to a corporate overdraft but are usually required to be “cleaned down” or repaid each year.
But Hunting’s RCF has been reduced by from $350m to $200m and its performance covenant has been suspended and replaced with an asset-based suite of financial requirements. As would be expected, the group said dividends would be paid until amended facilities were agreed.
What Hunting said:
Chief executive, Dennis Proctor, said:
While industry sentiment reached a low point during the early months of the reporting period, the improved US rig count data seen through Q2 indicates that the global energy markets are adjusting to the lower oil price environment.
The combination of lower operating costs and production efficiency gains has led to increased enquiry levels as operators focus on those projects which provide the strongest returns.
However, given the inherent uncertainty within the industry at this time, the current market estimates for the 2016 full year will remain dependent on an improved trading environment in the latter part of the year.
What a broker said:
Daniel Slater of Arden Partners said:
In terms of outlook, the July trading update referred to a level of stabilisation in Hunting’s markets, and an increased level of customer inquiries.
Today’s update reiterates this, flagging how Hunting has continued to position itself for recovery by taking out costs but retaining key abilities and members of staff to allow participation when the recovery arrives.
This is clearly hoped for later this year, and we agree that Hunting should be well positioned if it does, though there remains a long way to go to rebuild the P&L.