Hidden Value Stocks issue for the second quarter ended June 30, 2023, featuring an update from Maran Capital Management, discussing their investment thesis on Ranger Energy Services Inc (NYSE:RNGR).
Dan Roller's Maran Capital Management has not featured in Hidden Value Stocks in thepast. Still, the value-orientated equity hedge fund has an impressive track record ofoutperforming by selecting undervalued small and mid-cap stocks. It has returned 12% perannum net since its inception five years ago.
One of Maran's "key ingredients" in its quest for generating superior returns is "insight," themarriage of information and knowledge. This is the only way to build conviction, particularlyduring times of uncertainty, Roller explained in his Q1 letter to investors.
At the end of the first quarter, the fund's top five positions were API Group, Cadre Holdings, Correios de Portugal, and Vistry Group.
Alongside these holdings, the fund also owns a number of smaller positions, a couple of which the fund manager was adding to during the first quarter of the year at attractive valuations.
- Maran Capital On Ranger Energy Services
One of the stocks Maran was buying on weakness was Ranger Energy Services, an onshore domestic oil services company that helps oil producers service their wells once they are drilled.
Considering the company's position in the industry, strong balance sheet, and earnings growth potential over the next few years, the fund manager believes the shares are undervalued at current levels.
Roller summarized his thesis in his Q1 letter:
"It is an onshore domestic oil services company that helps E&Ps service their wells, once drilled. While energy is a volatile, commodity-driven business, Ranger is a small, well-run, now unlevered company that should stay pretty busy as long as oil stays above, say, $50-60/barrel, which is a reasonable long-term assumption.
Last year, Ranger generated $100 million of EBITDA on $700 million of sales, and it should do better this year. The business requires some capex, so the free cash flow of the business is around $70 million. Ranger has paid down its debt from over $75 million a year ago to almost zero today.
Ranger’s market cap is $300 million, so the business is trading at 3x EBITDA and just over 4x Free Cash Flow. Now that its balance sheet is clean, it will start to buy back shares. At the current pace of FCF generation, it could buy back approximately 2% of its shares every month. With a low float and high insider ownership, it may not take much for the stock to re-rate."
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
