Steel City Capital Investments, LLC is the management company of the Steel City Capital fund. Michael G. Hacke is the fund’s founder and managing member. Recently, Steel City Capital released its Q1 2020 Investor Letter – a copy of which can be downloaded here. For Q1 2020, the fund reported a net return of -10.7%, while the S&P 500 returned -20.00%.
In the said letter, Michael G. Hacke highlighted a few stocks and Anterix Inc. (NASDAQ:ATEX) is one of them. Anterix operates as a wireless communications company. Year-to-date, ATEX stock gained 25.2% and on April 24th it had a closing price of $53.30. Its market cap is of $928.51 million. Here is what Michael G. Hacke said:
“Anterix is the largest holder of “low band” 900 MHz spectrum in the United States. Since acquiring its spectrum holdings in 2014, ATEX has been petitioning the FCC to reallocate the band’s spectrum to enable broadband service. The company appears to be on the cusp of closing an important chapter in its efforts. On April 21st, FCC Chairman Ajit Pai announced that a final Rule & Order will be voted on at the commission’s upcoming May meeting.
Despite having increased ~30% above the Partnership’s average entry price, I continue to believe that ATEX’s best days are ahead of it. Over the next several years, the company will transition from a spectrum holding company to an asset-light operating company whose cash flows are supported by long-term agreements with investment grade utilities. Investor awareness should increase and risk premiums should compress, providing the basis for a much higher valuation. You have to visualize the situation 18 months from now, and whatever that is, that’s where the price will be, not where it is today.”
In Q3 2019, the number of bullish hedge fund positions on ATEX stock increased by about 22% from the previous quarter (see the chart here).
Steel City Capital’s comments on Scorpio Tankers
In the said letter, Michael G. Hacke also highlighted Scorpio Tankers Inc (NYSE:STNG) stock. Scorpio Tankers operates as a shipping company. Year-to-date, STNG stock lost 32.4% and on April 24th it had a closing price of $25.00. Its market cap is of $1.55 billion. Here is what Michael G. Hacke said:
“STNG provides seaborne transportation of refined petroleum products (gasoline, jet fuel, etc.). The company operates one of the largest and most modern fleets in the public markets. It is the world’s largest owner of Long Range, or LR2 vessels (the largest product vessels), and with its recent purchase of 19 vessels from commodity trader Trafigura, is also the largest Medium Range (MR) player. Its 124-vessel fleet has an average age of 4.0 years, notably younger than the next three largest product tanker companies.
When I initially established a position in STNG, my biggest fear was a global recession. In a recession, it’s not hard to envision how the dominoes would fall. A global recession would reduce refined product demand; lower refined product demand would sap utilization of the global tanker fleet; reduced utilization would result in declining rates and cash flow; and declining rates and cash flow would strain STNG’s less-than-pristine balance sheet.
Right now, we’re seeing a highly unusual set of circumstances. Despite being in a global recession, seaborne product tanker rates are currently reaching record levels. While refinery runs have been curtailed, the rapid and steep decline in product demand has resulted in significant oversupply. Tankers are increasingly being utilized for floating storage. In another positive for STNG, a significant number of the market’s largest product vessels have moved into the socalled “dirty” trade (storing crude oil), further exacerbating the supply-demand mismatch.
Despite the market offering historic rates, shares recently traded as low as ~0.50x P/NAV and as of today, STNG still only garners a valuation of ~0.8x P/NAV. The last time rates were anywhere near current levels (2015), shares traded well north of 1.0x NAV, leading me to believe there remains additional upside. What’s more, NAV itself should increase going forward on the heels of strengthening vessel values and strong cash generation, each being a function of the current rate backdrop.”
In Q4 2019, the number of bullish hedge fund positions on STNG stock increased by about 32% from the previous quarter (see the chart here).
Disclosure: None. This article is originally published at Insider Monkey.
