Income Strategy Weekly Updates

October 5, 2020

Income Strategy Update for Week Ended 10/2/20

Debt of Bed Bath & Beyond Jumps on Strong Fiscal Q2 Results While Occidental Announces Additional Asset Sale

Last week, the Income Strategy advanced 3.63%, outperforming both the Merrill Lynch U.S. High Yield Master II Index’s 0.88% gain and the S&P 500’s 1.54% rise. (Exhibit 1). The strategy ended the week down -16.97% YTD, or 1,675 basis points behind the high yield index and 2,210 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 10/2/201

Time Period Income Strategy ML HY II S&P 500
Last Week (9/25 – 10/2) 3.63% 0.88% 1.54%
MTD 2.05% 0.08% -0.42%
QTD 2.05% 0.08% -0.42%
YTD -16.97% -0.22% 5.13%
Inception (annualized since 4/2/2009) 11.07% 10.28% 15.65%

Source: Bloomberg, Miller Value Partners

Four equities and a bond comprised last week’s top five contributors. Debt of Bed Bath & Beyond (BBBY) jumped after the company reported strong fiscal Q2 results with free cash flow of $506M (+364% Y/Y), revenue of $2.688Bn (-1% Y/Y), and EBITDA of $199M (+35% Y/Y). The company posted comp sales of +6%, the first quarter of positive comp growth since 4Q16, driven by 90% growth in digital channels and partially offset by a 12% decline in-store. Gross debt fell by 30% to $1.195Bn following the $236M paydown on the revolving credit facility and repurchase of $300M senior notes via tender offer. Bed Bath exited the quarter with liquidity of $2.2Bn (2x gross debt), comprised of $1.5Bn of cash and $700M available on their ABL, implying a net cash position of $300M. The Chemours Co (CC) rose above the 50-day moving average as BMO raised their price target to $26, 16% upside excluding the 4.5% dividend yield, noting positive trends in titanium dioxide markets. GEO Group (GEO) rose above closely watched technical levels. Wolfe Research upgraded Lazard (LAZ) to “Peer Perform” with a $36 price target, 3% upside excluding the 5.4% dividend yield. Additionally, UBS upgraded boutique peers Evercore (EVR) and Moelis (MC), citing M&A indicators are turning positive and expectations restructuring activity will remain strong into next year.

Exhibit 2: Significant Contributors to Performance, 9/25/20 – 10/2/20

Name Type Return
Bed Bath & Beyond 5.165% 08/44 Bond 13.6%
The Chemours Co Equity 9.2%
***RECENTLY ADDED SECURITY*** Equity 12.8%
GEO Group Equity 6.5%
Lazard Equity 10.2%

Source: Miller Value Partners

A smattering of asset types comprised last week’s top five detractors. Occidental Petroleum (OXY) announced the sale of its onshore Colombia assets to the Carlyle Group for $835M ($700M upfront and $135M contingent upon oil prices and production levels). British American Tobacco (BATS LN) fell as “Neilsen” data through September 19th shows total nicotine volumes modestly decelerating. There was no price-changing news on the securities of Sberbank (SBER LI) or Pitney Bowes (PBI).

Exhibit 3: Significant Detractors from Performance, 9/25/20 – 10/2/20

Name Type Return
Sberbank Equity -2.8%
Occidental Petroleum 4.4% 4/46 Bond -2.6%
***RECENTLY ADDED SECURITY*** Bond -1.0%
British American Tobacco Equity -1.0%
Pitney Bowes 6.7% 3/43 Preferred -1.2%

Source: Miller Value Partners


Did you know that we write this piece for Opportunity Equity as well? Check it out.

1The performance figures reflect the results of a representative account net of management fees and certain other expenses. For important additional information about Income Strategy performance, please click on the Income Strategy Composite Performance Disclosure. The performance returns shown in this report are preliminary and are subject to revision. Past performance is no guarantee of future results.

Significant Contributors and Significant Detractors are the Strategy holdings that had the greatest effect on Strategy performance for the week. Holdings that have been in the Strategy 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. 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.

©2019 Miller Value Partners, LLC

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