Income Strategy Weekly Updates

March 18, 2019

Income Strategy Update for Week Ended 3/15/19

Alternative Asset Managers Rise on Peer Acquisition While Just Energy Falls Despite B Riley Optimism

Last week, the Income Strategy advanced 2.04%, outperforming the Merrill Lynch U.S. High Yield Master II Index’s 0.80% gain but underperforming the S&P 500’s 2.95% rise. (Exhibit 1). The strategy ended the week up 11.13% YTD, or 445 basis points ahead of the high yield index and 198 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 3/15/191

Time Period Income Strategy ML HY II S&P 500
Last Week (3/8 – 3/15) 2.04% 0.80% 2.95%
MTD -0.62% 0.30% 1.46%
QTD 11.13% 6.68% 13.11%
YTD 11.13% 6.68% 13.11%
Inception (annualized since 4/2/2009) 13.74% 11.21% 15.94%

Source: Bloomberg, Miller Value Partners

Five equities comprised last week’s top five contributors (Exhibit 2). Alternative Asset Managers Carlyle Group (CG), Blackstone (BX), and Apollo Global Management LLC (APO) advanced in conjunction with Brookfield Asset Management (BAM) acquiring a 62% stake in Oaktree Capital (OAK). Goldman Sachs is bullish on the group and believes the announced purchased price, which implies a 2020 price to distributable earnings multiple of 13.4x, underscores the embedded value of Alternative Asset Managers, which trade on average at 10.7x (20% discount). The analyst sees 22% upside for Carlyle ($24 price target), 15% upside for Blackstone ($40 price target), and 52% upside for Apollo ($41 price target). Alrosa (ALRS RX) reported Q4 EBITDA of RUB 27B, in-line with consensus and flat year-over-year. The company generated full-year FCF of RUB $92B, a 13% FCF yield and implies an 11% dividend yield based on the mid-point of their payout ratio range. Macquarie Infrastructure Co (MIC) moved above its 50 and 200-day moving average.

Exhibit 2: Significant Contributors to Performance, 3/8/19 – 3/15/19

Name Type Return
Carlyle Group LP Equity 8.4%
Blackstone Group LP Equity 5.9%
Apollo Global Management LLC Equity 4.0%
Alrosa PJSC Equity 5.3%
Macquarie Infrastructure Co Equity 2.3%

Source: Miller Value Partners

Equities comprised last week’s top five detractors (Exhibit 3). Just Energy Group (JE CN) declined over the week despite B Riley resuming coverage with a Buy rating and CAD $8 price target, 69% implied upside. The analyst cited management’s ability to drive consistent profitability, solid EBITDA growth, a call option in the company’s 7.8% ownership in ecobee, and a well-covered 10.5% dividend yield. Greenhill & Co Inc (GHL) declined after a Morningstar note expressed how fear of a recession can cap the upside potential due to its 2017 recapitalization. There was no price-changing news on National CineMedia (NCMI), New Media Invt Group Inc (NEWM) or Seaspan Corp (SSW).

Exhibit 3: Significant Detractors from Performance, 3/8/2019 – 3/15/19

Name Type Return
Just Energy Group Inc Equity -2.3%
Greenhill & Co Inc Equity -4.6%
National CineMedia Equity -1.2%
New Media Invt Group Inc Equity -1.2%
Seaspan Corp Equity -0.8%

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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