FPA Queens Road Small Cap Value Fund on Flowco Holdings Inc.
Thesis
Flowco makes and rents specialized gas-lift and vapor-recovery equipment for U.S. onshore energy companies. The business is tied to ongoing production rather than just new well development, and the managers expect benefits from an inflection in Permian rig activity. Attractive capital returns and a low-double-digit earnings multiple justified a new underweight holding.
“we were comfortable initiating an underweight position at a low double digit multiple of this year’s earnings.”
Key risks
- Dependence on U.S. onshore energy activity
- Expected Permian rig-count improvement may not emerge
- Oil and gas production could weaken