Value Investing Q3 Letter Recaps: SATS, ENVA, HAT

Our Value Investing Letter Recaps keep things simple. 

Each email focuses on three value investing hedge fund letters, three ideas, all digestible in three minutes

Within each idea we answer four main questions: 

  • What does the business do? 
  • Why is it a good bet? 
  • Why does the opportunity exist? 
  • What is the prize if you’re right?

Quick housekeeping note that nothing you read is investment advice and please do your own due diligence before investing. Also, I do not own any of the below-mentioned securities as of this writing. 

Finally, we get each investment letter from r/SecurityAnalysis, which you can find here

This week we analyzed EchoStar (SATS), Enova International (ENVA), and H&T Group (HAT.LSE).

Let’s get after it (as always, emphasis added).


Top 3 Value Investing Letters You Need To Know About

1. Steel City Capital, LP: EchoStar (SATS)

This is Steel City’s second appearance on the Value Letter Recap series. I’ll make sure to tag Mike (Steel City’s PM) on Twitter this time. He’s a great and underfollowed FinTwit member. You can read Mike’s latest letter here

Steel City declined 7.9% in Q3 and is down 18.20% YTD. 

Let’s dive into SATS. 

What does SATS do? 

“The visible portion is the company’s legacy satellite broadband business that, at the current time, is shedding customers at an unhealthy clip … 

Under the waterline is EchoStar’s vast S-Band spectrum holding. This spectrum asset will likely play a critical role in the expected use of satellites to provide 5G connectivity to devices that are outside the reach of traditional terrestrial networks. 

Potential use cases include consumer connectivity in remote areas, connectivity for IoT devices in industries like agriculture, transportation and supply chain logistics, and various defense-related applications.” 

Why is it a good bet? 

“SATS enterprise value is $1.2 billion, before accounting for nearly $600 million of construction in progress related to its Jupiter 3 satellite. Cash and investments total nearly $1.7 billion, fully offsetting either the company’s market cap ($1.4 billion), or its debt ($1.5 billion). 

Current annualized EBITDA is ~$630 million and should bottom out in the low $500 million range before rebounding after Jupiter 3 is placed into service. This implies a forward looking EV/EBITDA multiple of ~2.4x off of trough EBITDA. This is quite low considering SATS is a critical infrastructurelike asset with recurring revenue.” 

Why does the opportunity exist? 

“The main culprit is most likely Elon Musk’s Starlink, which currently offers more attractive speeds (100 Mbps) and lower latency. 

Maybe I’m being pollyannish about the situation, but I believe when SATS brings its Jupiter 3 satellite online next year, and is capable of delivering the same speeds as Starlink, churn will not only slow, but subscriber counts should begin to rebound. SATS will never be competitive with respect to latency, but that doesn’t keep me up at night.”

What is the prize if you’re right? 

 “Like I said above – maybe I’m being pollyannish – but I think our chances of realizing an attractive return over the next 2-3 years are quite good.”

Further Research Material


2. Blue Tower Asset Management: Enova International (ENVA)

Andrew Oskoui is the portfolio manager at Blue Tower. It’s their first appearance on the weekly Value Investing Letter Recap series. Blue Tower returned -2.95% during the quarter. You can read their latest letter here

Let’s dive into Andrew’s ENVA pitch. 

What does ENVA do?

“Enova is a subprime lender that uses machine learning methods to provide an automated underwriting of loans for a variety of different loan products.”

Why is it a good bet? 

“Enova has traded down to an extremely cheap valuation despite having strong organic growth and recently acquiring OnDeck Capital, a small business lender, at a bargain valuation. Enova is still in the process of realizing all of the synergies of combining its core business with OnDeck Capital and we should expect this combination to perform even better in the future.”

Why does the opportunity exist? 

“Investors incorrectly assume that since we’re going into a recession, that this will have a disproportionate effect on subprime lenders. In reality, Enova held up well during 2008 and 2020. As CEO David Fisher explained, “in many ways, recessions have less of an impact on our customers than on prime borrowers.5” The increase in non-performing loans to be expected in a recession is relatively small compared to their normal rate of charge-offs. 

As their business model already assumes high charge-offs, the increase from a recession does not destroy their profitability. A prime lender needs to have low rates of non-performing loans in their portfolio in order to remain profitable. Additionally, as many of their financial products are short-term, Enova has more of a capacity to adjust underwriting to macro conditions.”

What’s the prize if you’re right? 

“When the aforementioned interest rate cap bill does not get passed and the company maintains revenue growth and high profitability throughout the recession, Enova may rerate to a higher multiple. Enova’s competitive advantages will grow over time. The relative scale to other online only lenders will expand. Their underwriting algorithms will perform better as customer data increases.”

Further Research Material 


3. Palm Harbour Capital: H&T Group (HAT.LSE)

Palm Harbour Capital is a UK-based value investing firm. It’s my first time reading their letters, and I’m glad I found them. You can read their Q3 letter here where they outline their HAT thesis. 

Let’s dig in.

What does HAT.LN do? 

“H&T Group, founded in 1897, is one of the oldest and leading pawnbrokers in the UK with 261 stores across the country. A pawnbroking loan is a short-term secured loan (usually lent with a loan to value of 65% 4 ), usually for six months in the UK, against something of value that customer owns. In the case of H&T, 99.2% of the collateral is composed of precious metals, diamonds and luxury watches.”

Why is it a good bet? 

“Customers expect to pay a higher rate than a bank loan but less than a payday lender. According to the National Pawnbrokers Association (NPA), a borrower of £100 for a month should return £108 to a pawnbroker, £155 to a pay-day lender and £200 to a bank for an unauthorized overdraft. Additionally, unless the pawn is for less than £75 and a six-month contract, when all other unredeemed items are sold, any surplus is returned to the customer.”

Why does the opportunity exist? 

“We first became interested in H&T, when the share price was trading at depressed levels due to a combination of Covid lockdowns and an unsecured lending linked FCA regulatory investigation, both insignificant for the long-term prospects of the Group. 

The government deemed pawnbroking as an essential service hence stores were allowed to open quickly after the initial lockdown and the total fine for unsecured loans missselling was approximately £2.1m equivalent to 10-20% of one year’s operating profits. H&T has subsequently exited the unsecured lending segment which was negligible in size. 

Pandemic and regulatory overhangs were replaced by booming pawnbroking activity as rapidly increasing living costs boosted demand for short-term borrowing.

What is the prize if you’re right? 

“H&T’s pledge book reached £84m in June 2022, 75% higher than the pledge book in June 2021. and ahead of 2019. We are attracted to the countercyclical characteristics of this investment and low valuation [my commentary: ~12x EBIT according to TIKR].”

Further Research Material

Wrapping Up This Week’s Value Investing Letters: What To Read Next

Thanks for reading, and I hope you learned something. If you enjoy this series, let me know by shooting an email or retweeting on Twitter. 

Also, please let me know if there’s an investor letter I should read that I didn’t cover here.

Free Global Macro Investing Course

Learn the history, success factors, and analytical frameworks unique to Global Macro Investing. Sign up below for this free video course:

Subscribe To Our Newsletter

Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.


Investing & Personal Finance

AK is the founder of Macro Ops and the host of Fallible.

He started out in corporate economics for a Fortune 50 company before moving to a long/short equity investment firm.

With Macro Ops focused primarily on institutional clients, AK moved to servicing new investors just starting their journey. He takes the professional research and education produced at Macro Ops and breaks it down for beginners. The goal is to help clients find the best solution for their investing needs through effective education.

Tyler Kling

Volatility & Options Trader

Former trade desk manager at $100+ million family office where he oversaw multiple traders and helped develop cutting edge quantitative strategies in the derivatives market.

He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

Certified in Quantitative Finance from the Fitch Learning Center in London, England where he studied under famous quants such as Paul Wilmott.

Alex Barrow

Macro Trader

Founder and head macro trader at Macro Ops. Alex joined the US Marine Corps on his 18th birthday just one month after the 9/11 terrorist attacks. He subsequently spent a decade in the military. Serving in various capacities from scout sniper to interrogator and counterintelligence specialist. Following his military service, he worked as a contract intelligence professional for a number of US agencies (from the DIA to FBI) with a focus on counterintelligence and terrorist financing. He also spent time consulting for a tech company that specialized in building analytic software for finance and intelligence analysis.

After leaving the field of intelligence he went to work at a global macro hedge fund. He’s been professionally involved in markets since 2005, has consulted with a number of the leading names in the hedge fund space, and now manages his own family office while running Macro Ops. He’s published over 300 white papers on complex financial and macroeconomic topics, writes regularly about investment/market trends, and frequently speaks at conferences on trading and investing.

Macro Ops is a market research firm geared toward professional and experienced retail traders and investors. Macro Ops’ research has been featured in Forbes, Marketwatch, Business Insider, and Real Vision as well as a number of other leading publications.

You can find out more about Alex on his LinkedIn account here and also find him on Twitter where he frequently shares his market research.