HAL: Initiate at Peer Perform: Option on renewed pricing power or confidence in a capex upcycle

Research evidence excerpt

HAL: Initiate at Peer Perform: Option on renewed pricing power or confidence in a capex upcycle

HAL's revenue is more tightly correlated with North American activity than with global E&P capex in aggregate.

While it was the primary beneficiary of the North American shale supercycle between 2010 and 2014 the slow-

down in spending has been a headwind while embedding greater cyclical volatility in earnings. Any sign that NAM

spending can reset higher would favor HAL over peers in our view, but while consensus appears to be pricing in

higher NAM spending from recent price strength this is not yet supported by spending trends we see from our

E&P coverage.

●Some offset to stagnant NAM capex comes from an intentional mix shift toward Zeus electric frac which earns

higher margins on lower volumes. In our view a decade of fleet rationalization and high diesel prices provides

HAL with opportunities for increased market share for a sub-sector that already seen sufficient equipment

rationalization to improved pricing power across the fracking / pressure pumping market.

●Geographical diversification comes from its D&E sector, where 75% of revenues are outside of North America.

While this is also dependent on the broader industry spending cycle and Brent price outlook, we see it as more

defensive vs C&P, underpinned by Landmark software (recurring revenue), international drilling services, and

testing. While the shift in earnings towards D&E is slow, we see this as broadly margin-positive, particularly as

software revenues carry structurally higher margins than commodity pressure pumping.

At current levels, our estimates suggest HAL's forward multiple of 8.0x is mid-range vs peers. With our current revenue