Income Strategy Weekly Update for 01/19/2024 – 01/26/2024

Bread Financial Gains on Earnings Beat, While Alliance Resource Partners Falls in Sympathy with Coal Prices

Last week, the Income Strategy’s representative account rose 2.80% (net of fees), outperforming the ICE BofA Merrill Lynch High Yield Master II Index’s 0.64% gain and outperforming the S&P 500’s 1.07% gain. (Exhibit 1). The strategy ended the week down -1.97% YTD, or 194 basis points behind the high yield index and 459 basis points behind the S&P 500.

Exhibit 1: Performance of Income Strategy Representative Account Net of Fees Versus High Yield, Equity Indices, Through 1/26/2024¹

Time Period	Income Strategy Representative Account	ICE BofA Master High Yield II Index	S&P 500 Index
Last Week (1/19 – 1/26)	2.80%	0.64%	1.07%
MTD	-1.97%	-0.03%	2.62%
QTD	-1.97%	-0.03%	2.62%
YTD	-1.97%	-0.03%	2.62%
1 Year	3.82%	9.14%	22.43%
5 Year	3.93%	4.43%	14.85%
Inception (annualized since 2/28/2014)	3.55%	4.28%	12.33%

Source: Bloomberg, Miller Value Partners.

Five equities comprised last week’s top 5 contributors. Bread Financial Holdings (BFH) reported 4Q23 revenue of $1.02B, -1.5% Y/Y, ahead of consensus of $978.9MM, and EPS of $0.90, compared to a 4Q22 net loss per share of -$2.68, well ahead of consensus expectations for a net loss per share of -$0.76. The company’s CET1 ratio expanded 350bps Y/Y to 12.2% as of year-end, while Tangible Book Value (TBV) per share rose 48.5% Y/Y to $43.70, implying a P/TBV multiple of ~0.8x. Management provided FY24 guidance for a low to mid-single-digit decline in revenue, a low single-digit drop in average loans Y/Y, nominal positive operating leverage, and a net loss rate in the low 8% range (vs. 7.5% in FY23). AT&T (T) reported 4Q23 revenue of $32.0B, +2.2% Y/Y, ahead of consensus of $31.5B, and Adjusted EPS of $0.54, -11.5% Y/Y, below consensus of $0.56. Adjusted EBITDA for the quarter came in at $10.6B, or a margin of 33.0%, +40bps Y/Y, while FCF was $6.4B, bringing FY23 FCF to $16.8B, or a FCF yield of 13.6%. For FY24, management is guiding for wireless service revenue growth in the 3% range, Adjusted EBITDA growth in the 3% range, FCF of $17.5B (FCF yield of ~14.2% yield), and Adjusted EPS of $2.20, or a P/E of 7.9x, at the respective midpoints. Western Alliance Bancorp (WAL) reported 4Q23 net interest margin (NIM) of 3.65%, -2bps sequentially, ahead of consensus of 3.60%, and Adjusted EPS of $1.91, -3.0% sequentially, ahead of consensus of $1.88. The bank’s CET1 ratio expanded 20bps sequentially to 10.8%, while TBV/share rose 16.1% Y/Y to $46.72 (P/TBV multiple of ~1.44x), with management noting that WAL’s TBV/share has increased 8.5x that of its peers since 2013. Management provided FY24 guidance that calls for loan growth of $2.0B, deposit growth of $8.0B, a CET1 ratio >11.0%, NII growth of 7.5%, and net charge-offs (NCOs) of ~13bps, at the respective midpoints. There was no price-changing news for OneMain Holdings (OMF) or Viatris (VTRS) last week.

Exhibit 2: Significant Contributors to Income Strategy Representative Account Performance, 01/19/24 – 01/26/24

Name	Type
Bread Financial Holdings	Equity
OneMain Holdings Inc.	Equity
AT&T Inc.	Equity
Viatris Inc.	Equity
Western Alliance Bancorp	Equity

Source: Miller Value Partners.

Four equities comprised last week’s top detractors. Alliance Resource Partners (ARLP) fell in sympathy with US coal prices, as Central Appalachia and Illinois Basin coal prices dropped -1.4% and -2.3% last week, respectively. There was no price-changing news for Stellantis NV (STLA) or Vonovia SE (VNA GY) last week.

Name	Type
Stellantis NV	Equity
Alliance Resource Partners	Equity
*RECENTLY ADDED SECURITY*	Equity
Vonovia SE	Equity

Source: Miller Value Partners.

As of prior week’s market close unless otherwise stated.

¹The performance figures for the representative Income Strategy account reflect the deduction of investment management fees and certain other expenses. Returns greater than 1 year are annualized.

For additional information about Income Strategy performance, please click on the Income Strategy Composite Performance Disclosure. Past performance is no guarantee of future results.

Significant Contributors and Significant Detractors are based on holdings that had the greatest effect on representative account performance for the week. Holdings that have been in the portfolio since the end of the most recent calendar quarter are identified by name. For information on how Contributor/Detractor data were calculated and a list showing the contribution to the Strategy’s weekly performance of each investment held at such quarter end, contact us.

Any views expressed are subject to change at any time, and Miller Value Partners disclaims any responsibility to update such views. There is no guarantee that market trends discussed herein will continue. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. Past performance is no guarantee of future results, and there is no guarantee dividends will be paid or continued. Content may not be reprinted, republished or used in any manner without written consent from Miller Value Partners. Portfolio composition is shown as of a point in time and is subject to change without notice.