Sahm Adrangi’s Kerrisdale Capital, which made a name for itself and some impressive returns for investors by shorting US-listed Chinese shell companies and more recently DISH Network, has just informed its investors of its first half performance and it looks as if the firm is struggling to replicate the shining outperformance it’s reputation is built on.
According to Kerrisdale’s monthly returns tear sheet, a copy of which has been reviewed by ValueWalk, the fund delivered a net performance of -7.5% to investors in June 2016 bringing year-to-date performance to -12.1% net.
The long book detracted approximately 480 basis points gross and the short book detracted approximately 250 basis points gross in June. At the end of June Kerrisdale was 109% long, -29% short for a gross exposure of 138% and net exposure of 81%. The top five positions of the fund accounted for 41% of assets.
Kerrisdale Capital Down 12.1% on DISH short
Kerrisdale blames its poor June performance on two non-published long investments and a single recently published short position, which we can assume is DISH Network.
Kerrisdale raised $100 million from investors for a new fund earlier this year to bet against DISH, and the firm went public on the short at the beginning of May (see below). According to Kerrisdale’s calculations, the fund believed DISH was worth 60% to 80% below where it was trading when the short was initially announced.
However, since the beginning of May shares in DISH are up by 5% and over the past six months the stock is up 10%.
Kerrisdale believes DISH’s spectrum assets are overvalued and that the company has committed tax law violations as well. The rest of Wall Street and several other hedge funds disagree with this view.
As ValueWalk reported earlier this year, Altalis Capital Management, a well-respected small long/short equity hedge fund thinks DISH is severely undervalued as the company’s spectrum holdings are not factored into the headline financials, but they have substantial value.
Wall Street also agrees that DISH is undervalued. JP Morgan has a price target on the stock of $85, RBC Capital Markets has a target of $56 and Credit Suisse today raised its target price to $57:
“We increase our 2016/17 EPS forecasts by 8%/6%, to $2.80/$2.67, following Q2 results, and raise our TP to $57. While it is looking increasingly difficult to see material downside from current levels, we continue to wait for the outcome of the ongoing Incentive Auction for the next “mark” on spectrum valuation.”
“Our new $57 target price is based on a $23bn after-tax valuation of the company’s spectrum holdings…and a $14bn valuation of the core DBS business.” – Credit Suisse
“We remain Overweight on Dish and establish a December 2017 price target of $85 as we continue to believe the decline of the DBS business is well understood and manageable, and most of the value at Dish remains in its spectrum holdings.” – JP Morgan