Steel City Capital, an investment management firm, published its second quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly portfolio net return of 3.2% was recorded by the fund for the second quarter of 2021. Year-to-date, the Partnership gained 11.1%, net. You can view the fund’s top 5 holdings to have an idea about their top bets for 2021.
In the Q2 2021 investor letter of Steel City Capital, the fund mentioned Anterix Inc. (NASDAQ: ATEX), and discussed its stance on the firm. Anterix Inc. is a New Jersey, United States-based wireless communications applications provider, that currently has a $1.07 billion market capitalization. ATEX delivered a 60.41% return since the beginning of the year, while its 12-month returns are up by 41.22%. The stock closed at $59.89 per share on July 23, 2021.
Here is what Steel City Capital has to say about Anterix Inc. in its Q2 2021 investor letter:
“The Partnership’s largest position, by leaps and bounds, is Anterix (ATEX). The company is the largest holder of licensed spectrum in the 900 MHz band. After successfully petitioning the FCC to convert the band’s allocation from narrowband to broadband, ATEX is now in the process of monetizing its spectrum holdings via long-term leases and outright sales. The company has focused almost exclusively on electric utilities who need secure wireless broadband networks to connect the rapidly proliferating sensors and devices used by new grid management applications. ATEX has earned its place as the Partnership’s largest position on account of 1) a large disconnect between its price and the private market value of its spectrum (on a MHz-Pop basis), 2) a clearly articulated plan to realize the spectrum’s underlying value, and 3) an event-driven profile which should be uncorrelated with the overall direction of the market.
In mid-June, ATEX held its first Investor Day in several years. Management fine-tuned their near- and medium-term guidance, including the expectation of 2-3 new customer contracts with contracted proceeds of $200 million by March 31, 2022, the end of its current fiscal year. Through fiscal 2024, management expects to contract ~50% of the company’s spectrum for total contracted proceeds of $1.8 billion. Of this, the company expects to collect between $300-$500 million by the end of its fiscal year 2024. The combination of cash on hand and expected sale/lease proceeds comfortably exceed annual cash burn of $70 million per year, setting management up to begin thinking about returning capital to shareholders.
Despite the overall positive outlook provided by management, shares barely moved on the day of the presentation. It wasn’t until the following day that, without warning, ATEX rocketed ~17% higher. It’s my understanding the move followed the presentation of ATEX by an analyst at a “best ideas” conference. This tells me a couple of things. First, despite widespread (albeit lukewarm) sell-side coverage, the investment opportunity remains relatively “unknown” outside of communications analysts. Second, for those investors who are aware of ATEX, a not-so-insignificant number continue to view it as a “show-me” story and are waiting for news of more contracts. I think this is the wrong way to invest – you want a seat on the rocket ship before it takes off.”
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Based on our calculations, Anterix Inc. (NASDAQ: ATEX) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. ATEX was in 16 hedge fund portfolios at the end of the first quarter of 2021, compared to 15 funds in the fourth quarter of 2020. Anterix Inc. (NASDAQ: ATEX) delivered a 30.30% return in the past 3 months.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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Disclosure: None. This article is originally published at Insider Monkey.
