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Is Hunting plc The Perfect Partner For Royal Dutch Shell Plc And Tullow Oil plc In Your Portfolio?

Shares in Hunting (LSE: HTG) have risen by as much as 8% today after the company released an upbeat set of full-year results. On an underlying basis, 2014 was a record year for the energy services group, with revenue increasing by 7% and its bottom line growing by the same amount. This has allowed Hunting to reduce its net debt to $131m from $206m last year, and also means that dividends per share have risen by 5% versus 2013.

However, on a reported basis things look a whole lot different. That’s because the underlying results exclude the impact of significant impairments and, when taken into account, they cause Hunting’s results to be markedly different. For example, when impairments are included, Hunting’s bottom line fell from $107m in 2013 to just $72m in 2014, which is a fall of 33%. And looking ahead, there is a prospect of further impairments should the oil price resume its decline.

A Changing Landscape

In fact, Hunting, as many of its oil industry peers have done, is resetting its operations to take into account a low oil and gas price over the medium term. This should allow it to remain relatively resilient in the short to medium term, while also providing it with the opportunity to take advantage of any growth opportunities that come into being.

And, with Hunting having a very diversified business and strong cash flow (as mentioned), it should be able to weather further difficulties in the energy market and also come out the other side in a strong position relative to less financially able peers.

Value For money

Clearly, there is excellent value for money on offer in the energy sector, with significant margins of safety being built into valuations in case of further turbulence in oil and gas prices. For example, Hunting currently trades on a price to earnings (P/E) ratio of 13.3, which is considerably lower than the FTSE 100‘s P/E ratio of around 16. As such, it could offer upward rerating potential over the medium to long term, especially since its bottom line is forecast to grow by 11% in 2016.

Sector Peers

Of course, sector peers such as Shell (LSE: RDSB) (NYSE: RDS-B.US) and Tullow (LSE: TLW) offer significantly more diversification and growth potential respectively. Certainly, Shell is in the process of selling off non-core assets, but will still offer a size, scale and consistency that few energy companies can match. And, with it trading on a P/E ratio of 15.6, still seems to offer good value for money relative to the wider index.

Meanwhile, Tullow has stunning growth prospects, with its bottom line forecast to rise by 82% next year. This means that, while it has a sky-high P/E ratio of 34.6, its price to earnings growth (PEG) ratio of 0.3 still indicates that it offers growth at a very reasonable price.

Looking Ahead

With Hunting’s underlying performance being strong, it seems to be well equipped to cope with the present difficulties in the energy sector. Certainly, its share price is likely to remain volatile in the short run but, with it offering good value for money, it appears to be a sound long term buy to go alongside Shell and Tullow in Foolish portfolios.

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Peter Stephens owns shares of Royal Dutch Shell. The Motley Fool UK has recommended Tullow Oil. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.