In a new filing with the U.S. Securities and Exchange Commission, Jet Capital Investors, led by Matthew Mark, disclosed a letter it sent to the board of directors of SunCoke Energy Inc (NYSE:SXC). In his letter, Mr. Mark criticized SunCoke Energy Inc (NYSE:SXC)’s management for not taking any meaningful action in recent months to create shareholder value. This is the second letter from Mr. Mark to the company’s board. He previously sent a letter in February, urging the company to show that can grow and add value for shareholders. Jet Capital held about 4.12 million SunCoke Energy Inc (NYSE:SXC) shares, worth $61.54 million, as of the end of the first quarter of 2015.
We track the latest moves of hedge funds as well as monitor their holdings to find actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of six basis points between 1999 and 2012, however this 50-stock portfolio also underperformed the market by seven basis points per month. On the other hand, the top 15 small-cap stocks had an average monthly return of 127 basis points per month during the three month holding period that begins two months after the end of each quarter. We have been sharing the stock picks of our small-cap hedge fund strategy since the end of August 2012 and our small-cap strategy has returned over 144% since then, beating the S&P 500 ETF (SPY) by over 84 percentage points over this 2.5+ year period (read the details here).
New York-based Jet Capital Investors was founded by Matthew Mark. As of the end of the first quarter, the value of the fund’s public equity portfolio totaled $3.32 billion, while its holdings, in terms of value, are represented by NextEra Energy Inc(NYSE:NEE), Liberty Interactive Corp(NASDAQ:QVCA), and DIRECTV (NASDAQ:DTV).
Follow Alan S. Cooper's Jet Capital Investors
Let’s discuss Mark’s latest letter, in which he states that there is an apparent lack of a sense of urgency at SunCoke Energy Inc (NYSE:SXC). He further states that the company’s management is not seriously considering his previously disclosed sentiments regarding return of capital and dropdown of MLPable assets. He noted that the continued inaction results in the further decline of SunCoke Energy Inc (NYSE:SXC)’s shares, despite stability in the company’s longterm contracted operating results.
“The only reasonable explanation for the market’s distaste for SXC stock is management’s continued lack of any real strategic or capital actions,” Mark writes in the letter.
Moreover, Mark states in the letter that it seems SunCoke Energy Inc (NYSE:SXC)’s management is reluctant to drop assets down to SunCoke Energy Partners LP (NYSE:SXCP) at prices below its view of fair value. The company’s management, according to the letter, also remains far too focused on executing low probability growth scenarios, as opposed to implementing a reasonable capital return program.
“In the absence of management’s demonstrated ability to use its general partner structure to generate value for shareholders, we continue to expect you to run a process to explore all strategic options to sell SXC to someone who will. But before doing that, we expect capital returns to increase dramatically,” the letter states.
Furthermore, Mark asserts that other shareholders of SunCoke Energy Inc (NYSE:SXC) are not averse to his sentiments. Mark states that he wants capital returns to increase dramatically, and drop downs should be executed. If SunCoke Energy Inc (NYSE:SXC) is unable to grow past those drop downs, it should explore all options, including selling its valuable business model to someone else who will, the letter states.
“Doing nothing is not a sustainable strategy for SXC’s board. Our patience has been exhausted,” Mark declares.
SunCoke Energy Inc (NYSE:SXC) is an independent producer of metallurgical coke, with a market cap of $1.06 billion. The company pays a quarterly dividend of $0.08 for a yield of 1.20%. Shares of SunCoke Energy Inc (NYSE:SXC) have dropped by 20% during the past year and 17% year-to-date. Among the largest shareholders of SunCoke Energy Inc (NYSE:SXC) are Richard Rubin’s Hawkeye Capital and Greg Boland‘s West Face Capital, which hold 2.71 million and 2.59 million shares respectively as of the end of the first quarter.
Disclosure: None
