January 13, 2020

Income Strategy Update for Week Ended 1/10/20

Apollo Global Named Goldman Sachs Top Pick While UBS Lowers Chemours Price Target

Last week, the Income Strategy advanced 1.69%, outperforming both the Merrill Lynch U.S. High Yield Master II Index’s 0.26% gain and the S&P 500’s 0.98% rise. (Exhibit 1). The strategy ended the week up 1.44% YTD, or 97 basis points ahead of the high yield index and 31 basis points ahead of the S&P 500.

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

Time Period Income Strategy ML HY II S&P 500
Last Week (1/3 – 1/10) 1.69% 0.26% 0.98%
MTD 1.44% 0.47% 1.13%
QTD 1.44% 0.47% 1.13%
YTD 1.44% 0.47% 1.13%
Inception (annualized since 4/2/2009) 14.02% 11.08% 16.37%

Source: Bloomberg, Miller Value Partners

Three equities and two bonds comprised last week’s top five contributors (Exhibit 2). Goldman Sachs named Apollo Global Management (APO) as a top pick in the alternative asset manager space, their favorite sub-sector moving into 2020 as they believe rising prospects for realization activity will amplify secular fee-related earnings growth. UBS upgraded Alrosa (ALRS RX) to “Buy” and raised their price target to Rub 105 (from Rub 78), 14% implied upside excluding the 8.7% dividend yield, noting diamond demand appears to be bottoming out and the end of the destocking cycle should drive a recovery in earnings and free cash flow. Chico’s (CHS) rose after announcing a stronger Q4 outlook driven by improved product and elevated marketing. Management now sees net sales and comp sales of flat (from negative low-single digits), gross margins of roughly flat (from -150bps to -100bps), and SG&A expense down $5M. Debt of Endo International (ENDP) rose on news the company settled their opioid investigation with Oklahoma for $8.75M with no admission of wrongdoing.

Exhibit 2: Significant Contributors to Performance, 1/3/20 – 1/10/20

Name Type Return
Apollo Global Management Equity 5.4%
Alrosa PJSC Equity 6.3%
Chico’s FAS Equity 10.0%
Endo International 6.0% 7/23 Bond 4.5%

Source: Miller Value Partners

Equities comprised last week’s top five detractors (Exhibit 3). Citi maintained their “Neutral” rating on Chemours (CC) but lowered their price target to $18 (from $21), 4% implied upside excluding the 6.1% dividend yield, citing headwinds from illegal Hydrofluorocarbon imports impacting refrigerant pricing, as well as Perfluorooctanoic acid (PFOA) headlines remaining an overhang. Cedar Fair (FUN) fell over the week despite Stifel maintaining their “Buy” rating and raising their price target to $68 (from $66), 26% implied upside excluding the 6.9% dividend yield. Morgan Stanley initiated Energy Transfer (ET) with an “Overweight” rating and $18 price target, 33% implied upside excluding the 9.0% dividend yield, noting the company’s strong cash flow generation, high distribution yield, and capital discipline. BGC Partners (BGCP) fell below its 50-day moving average while Quad Graphics (QUAD) closed the week above its 50-day moving average.

Exhibit 3: Significant Detractors from Performance, 1/3/20 – 1/10/20

Name Type Return
The Chemours Co Equity -2.8%
BGC Partners Equity -2.6%
Quad Graphics Equity -2.5%
Cedar Fair Equity -2.9%
Energy Transfer Equity -2.1%

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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