Steel City Capital recently released its Q2 2020 Investor Letter, a copy of which you can download here. During the second quarter of 2020, the fund returned 13.1% net of fees, while the S&P 500 Index was up 20.0%. You should check out Steel City Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.
In the said letter, Steel City Capital highlighted a few stocks and Anterix Inc. (NASDAQ:ATEX) is one of them. Anterix Inc. (NASDAQ:ATEX) provides wireless communications applications. Year-to-date, Anterix Inc. (NASDAQ:ATEX) stock lost 1.7% and on July 20th it had a closing price of $43.07. Here is what Steel City Capital said:
"Anterix (ATEX): In May, the FCC voted unanimously to approve a proposed Rule and Order (R&O) that modernized the rules covering the 10 MHz of spectrum in the 900 MHz band to allow for 6 MHz of broadband and 4 MHz for narrowband users. The approval represented a major victory for ATEX, which has been petitioning the FCC for five years to reallocate the band’s spectrum to enable broadband service. The approval is also a victory for the nation’s utilities – ATEX’s targeted customers – who for years have attempted to gain access to low band spectrum for their evolving systems needs.
The R&O sets out three eligibility requirements for a broadband license which, when combined, strongly favor ATEX.
1. 50% of the Licensed Channels in the Entire 10 MHz Band: The first test mandates that a successful applicant must hold licenses for greater than 50% of the channels licensed in a particular county. ATEX currently holds licenses for over 50% of the licensed channels in more than 3,100 of the 3,223 counties in the U.S. This requirement alone all but positions ATEX to be the de facto owner all broadband licenses in the 900 MHz band nationwide.
2. 90% of the Licensed Channels in the Broadband Segment: The second test requires the broadband applicant to hold or have agreements with incumbents for at least 90% of the licensed channels in the broadband segment. Once the 90% threshold is reached, any remaining incumbents will be subject to mandatory relocation. ATEX meets the 90% test in approximately 43% of the nation’s counties and holds between 80-89.9% of the required channels in another 16% of counties. In counties where the company does not meet the 90% threshold, it can “clear” the spectrum by purchasing channels from existing licensees, paying to relocate existing licensees, or by demonstrating that broadband facilities will be far enough from a covered incumbent’s narrowband system to allow the two types of networks to co-exist.
3. Delivery of 6 MHz of Spectrum to the FCC: Once ATEX has met the first two eligibility requirements, it must return 6 MHz (240 channels) of 900 MHz spectrum to the FCC in exchange for the 6 MHz broadband license. If ATEX does not have that many channels in a county, it will be allowed to purchase vacant channels from the FCC’s inventory by making an “anti-windfall” payment to the U.S. Treasury. The payment is based upon prices for 600 MHz spectrum set during 2017’s incentive auction. The markets where the FCC has channels in inventory and where ATEX may need to purchase them are smaller markets where the cost will be substantially below the nationwide average amount paid in the 600 MHz FCC auction.
In addition to the FCC approval which meaningfully de-risked the investment opportunity, the news flow and commentary emanating from the company has been unquestionably positive. ATEX has: announced that it signed a letter of intent with the utility Ameren for lease of broadband spectrum; commented on progress with additional utilities and industrial customers; reaffirmed its financial goals (~$125MM of recurring revenue at an 80% EBITDA margin in 2024); and disclaimed the need for additional capital.
Of course, you wouldn’t know any of this if you looked at ATEX’s share price. After closing at an all-time high of $57 in the weeks following the FCC’s approval, shares have retreated to the low-$40s. ATEX’s spectrum continues to be valued below $0.40/MHz-Pop. This is highly illogical considering the FCC chose to use 600 MHz spectrum as the most comparable low-band spectrum when establishing the reference price for payments under the anti-windfall provision. The national average of the MHz-Pop price in the 2017 600 MHz auction was $0.93. This also aligns with precedent transactions where similar low-band spectrum has traded hands between $0.70-$1.00/MHz-Pop. I continue to believe that ATEX offers compelling value with an attractive margin of safety and have been selectively adding to the Partnership’s position."
In Q1 2020, the number of bullish hedge fund positions on Anterix Inc. (NASDAQ:ATEX) stock decreased by about 8% from the previous quarter (see the chart here), so a number of other hedge fund managers don't seem to agree with Anterix's growth potential. Our calculations showed that Anterix Inc. (NASDAQ:ATEX) isn't ranked among the 30 most popular stocks among hedge funds.
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Video: Top 5 Stocks Among Hedge Funds
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