Income Strategy Weekly Updates

August 10, 2020

Income Strategy Update for Week Ended 8/7/20

Cedar Fair Rises Following Q2 Results, Significant Liquidity While Carlyle Group Falls on Block Offering

Last week, the Income Strategy advanced 3.05%, outperforming both the Merrill Lynch U.S. High Yield Master II Index’s 0.58% rise and the S&P 500’s 2.49% gain. (Exhibit 1). The strategy ended the week down -19.12% YTD, or 1,947 basis points behind the high yield index and 2,405 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 8/7/201

Time Period Income Strategy ML HY II S&P 500
Last Week (7/31 – 8/7) 3.05% 0.58% 2.49%
MTD 3.05% 0.58% 2.49%
QTD 7.37% 5.39% 8.27%
YTD -19.12% 0.35% 4.93%
Inception (annualized since 4/2/2009) 10.97% 10.48% 15.86%

Source: Bloomberg, Miller Value Partners

A smattering of asset types comprised last week’s top five contributors. Cedar Fair (FUN) reported Q2 revenue and EBITDA of $7M and -$85M, missing consensus of $19M and -$58M, respectively. Given uncertain reopening timelines for a number of parks, management decided only two parks will remain open post-Labor Day and then converting to weekend only through November 1st. The company exited Q2 with $661M of liquidity ($301M in cash and $360M remaining under their revolver), providing a significant runway well into 2021 given monthly cash burn of $35M. The Chemours Co (CC) rose in conjunction with the ISM Manufacturing Index improving to 54.2, above consensus expectations of 53.6 and expanding at the fastest pace since March 2019. Debt of Diebold Nixdorf (DBD) rose as DA Davidson maintained their “Buy” rating on the equity, noting expectations for material long-term upside driven by continued execution in DN Now, a demand rebound in ATMs, and de-leveraging the balance sheet. Pitney Bowes (PBI) preferreds continued to advance following news the company won a government agency contract to streamline shipping and mailing operations across several thousand US locations.

Exhibit 2: Significant Contributors to Performance, 7/31/20 – 8/7/20

Name Type Return
Cedar Fair LP Equity 11.9%
The Chemours Co Equity 7.3%
Diebold Nixdorf 8.5% 4/2024 Bond 3.4%
Pitney Bowes 6.7% 3/2043 Preferred 11.1%

Source: Miller Value Partners

Three equities and two bonds comprised last week’s top five detractors. Carlyle Group (CG) fell below the 200-day moving average after a 1.45M block offering from an undisclosed holder priced at $27.90, a 1.6% discount to the prior day’s close. Credit Suisse maintained their “Outperform” rating on British American Tobacco (BATS LN) but lowered their price target to 3,930p, 55% implied upside excluding the 8.3% dividend yield. There was no price-changing news on GTT Communications (GTT), Chaparral Energy (CHAP), or Apollo Global Management (APO).

Exhibit 3: Significant Detractors from Performance, 7/31/20 – 8/7/20

Name Type Return
GTT Communications 7.875% 12/2024 Bond -6.7%
Chaparral Energy 8.75% 7/2023 Bond -25.0%
Carlyle Group Equity -3.5%
British American Tobacco Equity -1.5%
Apollo Global Management Equity -0.7%

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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