Investors Will Want Hunting's (LON:HTG) Growth In ROCE To Persist

Hunting PLC (LON:HTG) has been on a remarkable journey, with its Return on Capital Employed (ROCE) increasing significantly from 1% in 2022 to 6% in 2023. This impressive growth in ROCE can be attributed to several strategic initiatives and operational improvements. Let's delve into the key drivers behind Hunting's ROCE growth and explore whether this trend is sustainable in the long term.

1. Innovation and New Technology: Hunting's strategic focus on innovation and new technology has been a significant contributor to its improved ROCE. The company's continuous investment in research and development (R&D) has led to the launch of new products and technologies, such as the H-4 Perforating System, which has enhanced its competitive position and profitability. This focus on innovation has helped Hunting to increase in-field safety and deliver completion efficiencies, lowering drilling and development costs for clients.
2. Expansion into High-Growth Markets: Hunting's expansion into high-growth markets, such as India, has also positively impacted its ROCE. In 2023, Hunting completed the construction and commissioning of its new threading facility at Nashik Province, India, with its joint venture partner, Jindal SAW Ltd. This expansion has opened up new revenue streams and increased Hunting's market reach, contributing to its improved ROCE.
3. Strong Operational Performance and Cost Management: Hunting's strong operational performance and effective cost management strategies have also contributed to its improved ROCE. The company's revenue increased by 28% to $929.1 million in 2023 compared to $725.8 million in 2022. Additionally, Hunting's EBITDA margin improved to 11% in 2023 from 7% in 2022, demonstrating improved profitability. These operational improvements have directly contributed to Hunting's ROCE growth.

To assess the sustainability of Hunting's ROCE growth, we can analyze the key drivers and potential risks associated with its capital expenditure and asset utilization strategies:

1. Capital Expenditure (Capex): Hunting's investment in new technology and expansion into high-growth markets has contributed to its ROCE growth. However, high Capex could potentially impact the company's cash flow if the investments do not yield the expected returns. It is essential for Hunting to maintain a balance between investing in growth opportunities and managing its cash flow effectively.
2. Asset Utilization: Hunting's ability to efficiently utilize its assets has contributed to its ROCE growth. However, market risks, technological obsolescence, and dependence on key customers could negatively impact Hunting's operations and financial performance. To mitigate these risks, Hunting must adapt to changing market conditions and diversify its customer base.

In conclusion, Hunting's ROCE growth is sustainable in the long term, as the company continues to expand into high-growth markets, secure record contract awards, and improve its profitability. However, it is essential for Hunting to manage its capital expenditure effectively, adapt to changing market conditions, and diversify its customer base to maintain this growth trajectory. Investors will want Hunting's growth in ROCE to persist, and by monitoring the company's performance and adapting to market conditions, Hunting can continue to deliver strong returns for its shareholders.