CA - Rewey Asset Management - Aris Water Solutions: Misunderstood By The Market

2024-02-07 04:40:00 ET

Summary

• We think Aris Water Solutions is misunderstood by the market, as its revenues correlate with produced oil volumes, not prices.
• ARIS has a strong financial profile, supported by its long-term contracts with customers.
• We believe ARIS represents a compelling valuation opportunity at $8.39, as it trades for 6.4x and 5.4x 2023 and 2024 EBITDA estimates, respectively.

The following segment was excerpted from this fund letter.

Aris Water Solutions Inc. ( ARIS )

We purchased shares of Aris Water Solutions, a $484 million market cap provider of water disposal and recycling solutions to oil and gas producers in the Permian Basin. Shares of ARIS ended the quarter at $8.39, a whopping 33% below its October 2021 IPO price of $13. We think ARIS is misunderstood by the market, as its revenues correlate with produced oil volumes, not prices. ARIS fills the critical need to treat and dispose of water that is produced in oil production, up to a 5:1 ratio in the Permian. ARIS is also increasing the amount of produced water that can be re-used in drilling, avoiding the need to tap fragile aquifers in the arid region. Our conservative price target is set at $12, which represents a potential 43% return, plus its attractive 4.3% dividend yield....

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