Weekly Round-up: Volatility Galore, $SATS Rollercoaster, Post-Catalyst Investing
We have seen some incredible two-way volatility over the past 6-7 trading days with the chance to opportunistically add and trim several names:
SK Square: 30% intra-week swing, trimming at new ATH
Did not pullback enough for us to compound back in and within days we were at a new ATH (KRW 1.41M)
Trimmed another ~8% at close to ATH levels at ~3x MOIC on our March buys
NAV discount compressed back to 43.6% by the end of the week after reaching pre-IBKR levels of ~48% on Monday
Honeywell: accumulation ahead of the spin-off
HON 0.00%↑ dipped back within our target range (<$210) and we are able to add between $206-209 ahead of the H 0.00%↑ ONA spin-off in less than 2 weeks
At our target levels we believe we are creating Automation + Aero at <13x 27E EBITDA
Still leaving some room for lower + potential post-spin dislocations however we have already bounced back to >$220 / share
Klarna: adding more ahead of 26th of June litigation verdict
On KLAR 0.00%↑ we added to our position in the $15-16 range
We like these levels independently of the impending litigation event
We have now received the full court filings from the Stockholm courts and are building conviction around a decent sized expected value payout as a % of market cap. Will be releasing our full findings ahead of the event, so stay tuned.
EchoStar Rollercoaster
With the SPCX 0.00%↑ IPO this week, SATS 0.00%↑ was all over the place!
We discussed our revised thought process last week going into the event: a revised bias towards maintaining exposure with some opportunistic sell-orders in the >$130 range if we got there.
While we did get triggered on some additional sales mid-week, we did not anticipate the level of dislocation on Friday and at some point the levels got too juicy to pass up.
With most of our original buys from late 2025 in the $75-$85 range, we set the bar high on any new purchases. At $108-112 we found ourselves in a situation where:
We were post FCC approval on the spectrum sale transaction
SPCX 0.00%↑ was trading live at a valuation well in excess of our original underwrite
On an intraday basis, we actually had a good 20-30 minutes where SPCX 0.00%↑ bounced back from ~$155 to >$168 while SATS 0.00%↑ remained below $110. This made very little sense to us and finally decided to compound back in while simultaneously placing a small SPCX 0.00%↑ hedge (~20%) on HL.
So where does this leave us? Here is a quick breakdown of where we are:
At SPCX 0.00%↑ closing price of $161, the attributable value per share EchoStar’s stake is $136 (gross) or $114 (net of CGT)
In other words, at the closing price of $114 EchoStar is trading at exactly the value of its SpaceX holdings net of CGT
Of course, EchoStar has significant other assets on balance sheet – even if we zero out any OpCo equity value, there is $42B of spectrum asset value of which 78% is in the form of cash receivables)
Net of HoldCo liabilities, this equates to an incremental $73 / share
At peak intraday dislocation we calculate that the (pre-CGT) NAV discount reached close to 50% after settling at 45.4% by CoB.
On NAV spread trades, we’ve discussed our approach in the past. We like to be opportunistic and exploit the move from completely egregious to only moderately egregious rather than strive for the perfect structural discount which can often be an elusive game. We think Friday represented excessive dislocation and were more than happy to reload in that range.
Post-Catalyst Investing?
Sometimes taking a position after a news-driven move can be highly +EV over a short time frame if assessed properly. There is a natural tendency to assume that big news gets priced close to perfection very fast.
Most recently, we covered easyJet and highlighted how there was a lot of room to run post the original announcement. In this scenario, it was clear that the Company was trading at a steep discount to break-up value. The Castlelake news shined light on the discount but even then it took over a week for the market to digest fully as it became clearer that there was a real commercial case to be made at a significantly higher level with workarounds for and legal / regulatory hurdles.
We hypothesised that Castlelake would have enough room to bid well north of 500p / share – and after 4 days of publishing we are now already there. While we annoyingly did not participate despite paying close attention to the situation, this was a relatively straightforward >20% trade opportunity (and perhaps more) over a 1 week time horizon.
We had a similar situation on EchoStar, where even AFTER the Spectrum sale to SpaceX SATS 0.00%↑ shares languished in the $75-85 range after an initial move higher. There can be many reasons for such “delayed market efficiency” – in the case of EchoStar there was a large credit / special sits oriented stakeholder base happy to get out on the initial move. Lack of natural long-term holders + the lack of research coverage on a name that was stressed/distressed meant that it took a few more months to overcome that initial technical sell pressure.
Something to keep in mind as similar situations pop up in the future!