July 31, 2017

Income Strategy Update for Week Ended 7/28/17

New Media Investment Group Advances on Strong Q2 Results While Arlington Asset and Greenhill Results Fall Short of Expectations

Last week, the Income Strategy fell -0.12%, underperforming both the Merrill Lynch U.S. High Yield Master II Index’s 0.23% advance and the S&P 500’s flat performance (Exhibit 1). The strategy ended the week up 11.56% YTD, or 543 basis points ahead of the high yield index and 11 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 7/28/171

Time Period Income Opportunity ML HY II S&P 500
Last Week (7/21 – 7/28) -0.12% 0.23% 0.00%
MTD 0.48% 1.16% 2.13%
QTD 0.48% 1.16% 2.13%
YTD 11.56% 6.13% 11.67%
Inception (annualized since 4/2/2009) 15.55% 12.66% 16.25%

Source: Bloomberg, Miller Value Partners

Five equities comprised last week’s top five contributors (Exhibit 2). Local newspaper firm New Media Investment Group (NEWM) rose after reporting Q2 revenues of $322.9M and improved same-store sales metrics. The company also reported EBITDA of $43.3M and free cash flow of $33.7M, up 8.0% and 15.8%, respectively Y/Y, and maintained their $0.35/share dividend (10.1% annualized yield). Colony NorthStar (CLNS) rose after acquiring a 2.8M square foot, 20 property industrial portfolio for $201M. The space is 94% leased to 64 tenants and generates strong recurring cash flows. JMP Group (JMP) moved above closely watched technical levels. There was no price-changing news on Fortress Transportation & Infrastructure (FTAI) or Carlyle Group (CG).

Exhibit 2: Significant Contributors to Performance, 7/21/17 – 7/28/17

Name Type Return
New Media Investment Group Equity 4.0%
Fortress Transportation & Infrastructure Equity 4.1%
Colony NorthStar Inc. Equity 2.2%
JMP Group Equity 5.2%
Carlyle Group Equity 1.2%

Source: Miller Value Partners

Four equities and a bond comprised last week’s top five detractors (Exhibit 3). Arlington Asset Investment (AI) fell after reporting Q2 results that showed book value fell -8.9% since Q1. BGC Partners (BGCP) reported Q2 distributable income per share of $0.24, in-line with analyst estimates, while revenue of $737.8M was higher than expected. However, the company announced modest Q3 revenue guidance of $695M-$740M, implying the Street’s $720M expectation could be a bit high. The debt of hospital operator Community Health Systems (CYH) fell after management preannounced Q2 results including $435M of EBITDA, 15% short of analyst estimates. The miss was due to lower than expected same-store volumes and higher medical specialist fees. In addition, management cut its preliminary full year 2017 EBITDA outlook by 8%, but did announce that asset sales efforts remain strong. Investment bank Greenhill (GHL) reported Q2 revenue of $67.3M and EPS of $0.20, missing estimates of $72.1M and $0.27, respectively. The company maintained their $0.45/share dividend (9.6% annualized yield) while noting that results will be unpredictable. There was no price-changing news on Fifth Street Finance (FSC).

Exhibit 3: Significant Detractors from Performance, 7/21/17 – 7/28/17

Name Type Return
Arlington Asset Investment Corp. Equity -6.8%
BGC Partners Equity -4.7%
Community Health Systems 6.875 2/22 Bond -5.4%
Fifth Street Finance Equity -2.4%
Greenhill & Co. Equity -3.0%

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 deduction of a model investment management fee of 1% (the highest fee for separate accounts under our fee schedule) 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.

©2017 Miller Value Partners (includes LMM LLC and Miller Value Partners, LLC)

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