As published in the 12/31/23 Ariel Investment Trust Quarterly Report
Founded in 1936, Core Laboratories Inc. (NYSE: CLB) is a leading energy services provider. Its reservoir description services are used to define the entire oil and gas reservoir system, which includes the porous and permeable reservoir rock and the three fluids—crude oil, natural gas and water—present in the world’s oilfields. Its production enhancement services and products are designed to increase the daily output from oil and gas fields. In essence, Core Labs allows energy companies to outsource their geological analysis and drilling techniques, and thereby eliminate the need for in-house geologists. With more than 70 offices across 50 countries spanning 6 continents, Core Labs has a presence in every major oil-producing province in the world.
Proven Success
For many of its services, the company’s biggest competition is the internal competencies of its customers. And yet, it has continued to gain share with its superior offerings. While customers have been streamlining their internal capabilities, Core Labs has maintained its positioning by working with companies around the globe to identify the optimal approach to maximizing yields. Conversely, most energy companies only have access to their past drilling experiences. Core Labs’ proven track record of success is a critical advantage since many oil and gas companies will not engage inexperienced contenders.
Underappreciated Enduring Demand
Demand for Core Labs’ services continues to be misunderstood by the market. Initial interest begins a few quarters after capital spending on well drilling. After the rock core sample of the well is complete, the core is sent to Core Labs for analysis. Many investors believe this is the end of the relationship between Core Labs and its customers. However, the company continues to analyze fluids from the well throughout the production process, which can account for decades of additional revenue for conventional wells. Even with a potential global slowdown in drilling, the company is poised to have regular demand for its services for years to come.
Balance Sheet Improvements
Core Labs has consistently generated free cash flow despite uncertainty in prices and activity in the energy sector. Current management has been focused on lowering debt. With a stronger balance sheet, stock buybacks and/or dividend increases are possible. Overall, the notable cash generation and steady management of the business allow Core Labs to play offense with its profits versus only focusing on debt repayment.
A Business of Trust
Core Labs has a long history of being a trusted partner. The company’s attractive business characteristics provide a formidable moat to generate solid free cash flow throughout the cycle. While the market continues to underappreciate the advantageous positioning of Core Labs, we believe there is meaningful upside from current levels. As of December 31, 2023, shares traded at $17.66, a 51% discount to our private market value of $35.90.
The companies highlighted in the Company Spotlights were held in one or more of the following Fund portfolios during the quarter ending December 31, 2023: Ariel Fund, Ariel Appreciation Fund, Ariel Focus Fund, Ariel International Fund and Ariel Global Fund. We candidly discuss various individual companies to illustrate our investment process. The information and our opinions were current as of the date above but are subject to change. The information shown does not provide information reasonably sufficient upon which to base an investment decision and should not be considered a recommendation to purchase or sell any particular security. These securities do not represent all securities purchased or sold to investors during the period. The performance of any single portfolio holding is no indication of the performance of other portfolio holdings of any Fund or of any particular Fund itself. Portfolio holdings are subject to change. Past performance does not guarantee future results. Click here for the top holdings of the Funds.
Investing in equity stocks is risky and subject to the volatility of the markets. The performance of any single portfolio holding is no indication of the performance of other portfolio holdings or its strategy. Investing in small- and mid-cap stocks is more risky and volatile than investing in large-cap stocks. Investments in non-U.S. securities may underperform and may be more volatile than comparable U.S. stocks because of the risks involving non-U.S. economies, markets, political systems, regulatory standards, currencies, and taxes. The intrinsic value of the stocks in which the Funds invest may never be recognized by the broader market. The Funds are often concentrated in fewer sectors than their benchmarks, and their performance may suffer if these sectors underperform the overall stock market. Ariel Focus Fund is a non-diversified fund and therefore may be subject to greater volatility than a more diversified investment. Investments in emerging and developing markets present additional risks, such as difficulties in selling on a timely basis and at an acceptable price.
Investors should consider carefully the investment objectives, risks, and charges and expenses before investing. For a current prospectus or summary prospectus which contains this and other information about the funds offered by Ariel Investment Trust, call us at 800-292-7435, visit our website, arielinvestments.com or click here. Please read the prospectus or summary prospectus carefully before investing. Distributed by Ariel Distributors LLC, a wholly-owned subsidiary of Ariel Investments LLC. Ariel Distributors, LLC is a member of the Securities Investor Protection Corporation.
