November 18, 2019

Income Strategy Update for Week Ended 11/15/19

Specialty Retail, Alternative Asset Managers Rise While Midstream Can’t Catch a Bid

Last week, the Income Strategy advanced 0.91%, outperforming the Merrill Lynch U.S. High Yield Master II Index’s -0.07% loss but underperforming the S&P 500’s 0.94% gain. (Exhibit 1). The strategy ended the week up 15.27% YTD, or 340 basis points ahead of the high yield index and 1,142 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 11/15/191

Time Period Income Strategy ML HY II S&P 500
Last Week (11/8 – 11/15) 0.91% -0.07% 0.94%
MTD 2.23% 0.09% 2.87%
QTD 0.91% 0.32% 5.10%
YTD 15.27% 11.87% 26.69%
Inception (annualized since 4/2/2009) 13.21% 10.96% 16.09%

Source: Bloomberg, Miller Value Partners

Equities and a bond comprised last week’s top five contributors (Exhibit 2). Specialty retailers continued higher on US/China trade talks. Chico’s (CHS) rose above its 200-day moving average as B Riley maintained their “Buy” rating and increased their price target to $5 (from $4), 21% implied upside excluding the 8.5% dividend yield, noting expectations for sequential improvement in Q4 product and sales. Abercrombie & Fitch (ANF) maintained their $0.20/share quarterly dividend (4.7% annualized yield).  Alternative asset managers Apollo Global (APO) and Carlyle Group (CG) rose with the broad equity market. Citigroup maintained their “Buy” rating on Apollo with a $55 price target, 26% implied upside excluding the 4.6% dividend yield, citing strong fee-paying AUM growth via robust fundraising. Debt of Chaparral Energy (CHAP) rose after reporting in-line production of 26.2 MBOE/d, driving EBITDA of $35.8M versus consensus of $38.6 M. The company retired $18.1M in debt over the quarter (48% of current market cap) and dropped to a two-rig program. Management guided to Q4 production of 27.5-29.0 MBOE/d and reiterated full-year production guidance of 25.0-27.0 MBOE/d while lowering capex by 1% at the midpoint to $260M-$280M.

Exhibit 2: Significant Contributors to Performance, 11/8/19 – 11/15/19

Name Type Return
Chico’s FAS Equity 12.5%
Apollo Global Management Equity 3.9%
Carlyle Group Equity 3.7%
Abercrombie & Fitch Equity 4.4%
Chaparral Energy 8.75% 7/23 Bond 5.2%

Source: Miller Value Partners

Equities comprised last week’s top five detractors (Exhibit 3). Midstream MLPs NGL Energy Partners (NGL) and Energy Transfer (ET) continued to slide on little news. RBC maintained their “Outperform” rating on NGL, but slightly lowered their price target to $15 (from $16), 53% upside excluding the 15.9% dividend yield. Energy Transfer fell on news the FBI is investigating the permitting process for their Mariner East pipeline. Further, the CFO bought $200.6K worth of shares at $11.15. Chemours (CC) declined as ex-DuPont CEO Ellen Kullman backtracked on earlier statements regarding Chemours liabilities, claiming at the time of the spin-off, the Board knew historical obligations were “uncapped”. National CineMedia (NCMI) fell below its 200-day moving average. New Media (NEWM) received shareholder approval for its merger with Gannett (GCI).

Exhibit 3: Significant Detractors from Performance, 11/8/19 – 11/15/19

Name Type Return
The Chemours Co Equity -5.1%
National CineMedia Equity -6.7%
NGL Energy Partners LP Equity -2.9%
Energy Transfer LP Equity -4.9%
New Media Investment Group Equity -15.6%

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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