Hunting was on the up on Thursday after Canaccord Genuity upgraded its stance on the energy services provider to 'buy' from 'hold' following share price weakness.
The stock is down more than 25% from its peak in June, Canaccord noted, saying that it had been notably weaker through “Red October”.
“We are upgrading our rating to buy and reducing our sum-of-parts based price target to 775p (was 850p) reflecting the broader market selloff,” it said.
Canaccord said it still believed the outlook for the fast-cycle parts of the oil services sector is attractive, with customers having broadly worked down much of their excess inventory and consequently a steady improvement in capacity utilisation in the industry.
“We have been a little behind the times on Hunting earnings, and are moving estimates up notably, largely reflecting the strong 1H results and the continued good figures in 3Q. As with peers, we are expecting a much weaker close of the year, with North American customers taking extended breaks in certain basins, and consequently, a slowdown in the blistering pace of growth Hunting has enjoyed for the past half-dozen quarters.”
Canaccord said that what is less earmarked is the steady improvement in the international outlook, with few of the major international basins having enjoyed huge production growth in the past years.
“Whilst we don't see this changing quickly, there is clear evidence – Exxon in Guyana being perhaps the highest profile project – that returns for longer cycle projects are becoming compelling for the (now cash-rich) oil majors.”
RBC Capital Markets cut its stance on security services firm G4S to 'sector perform' from 'top pick' on Thursday, slashing the price target to 210p from 240p following its trading update a day earlier.
RBC said the third-quarter statement was “disappointing”, with organic growth of 2.5% lower than the 2.8% reported in the second quarter and below expectations of 3.4%.
“G4S has been a frustrating stock. The equity story still appears strong given a robust market, strong market positions and the positive mix drivers, cost savings and de-gearing. However, operationally the business has not delivered and debt levels remain high. This is now even more of a show-me story and hence we see outperformance as unlikely short-term.”
While it appreciates that the business was in a mess when the CEO changed in 2013, five years on, there has not been much progress as far as shareholder returns are concerned.
“The shares are down 30% relative, the balance sheet is only marginally better (2.8x vs 2.5x net debt: EBITDA), the pension deficit remains a cash drag, exceptional costs remain high and EPS growth remains muted,” it noted, adding that over that same period, the CEO has taken home over £15m.
“We do now wonder whether it is time for a change or exploration of something more radical. The sale or demerger of part or all of Cash Services and/or Justice Services would achieve the goals of focus and debt reduction as well as freeing up management time to focus on the core Security Solutions and Technology businesses.”
The bank also removed G4S from its 'European Equity Large-Cap Best Ideas List'.
Analysts at Citi and Credit Suisse took a fresh look at Sophos on Thursday after the cybersecurity outfit's share price took a nosedive the day before.
Sophos shares plunged on Wednesday after the FTSE 250 resident said it now expected only a “modest improvement” in billings growth in the second half of the year against “challenging” year-on-year comparatives.
Citi retained its 'buy' rating on Sophos given the firm's exposure to the “structurally growing cyber security market” and still expect Sophos to “drive a highly differentiated security strategy through its synchronized network and endpoint product portfolios”.
The bank said it expects 2020 full-year billings to grow 14% to $902m as a result of Sophos' 20% growth in its renewal book and its stable renewal rates of around 120%.
Over at Credit Suisse, which also projects 2020 billings of $902m, which it noted was well below the $1.05bn consensus at the start of the year and management's target of $1bn, analysts said they was far from surprised that investors had been “unsettled”.
Despite this, the Swiss bank also reiterated its 'outperform' rating, noting that its unlevered free-cashflow yield of around 7% made it an “attractive” investment prospect.
“However, based on investor feedback, it will take time – and stronger execution against expectations – before investors are likely to give management the benefit of the doubt,” analysts noted.