November 25, 2019

Income Strategy Update for Week Ended 11/22/19

British American Tobacco Rises on FDA Ruling While Specialty Retailers Fall with Peer Earnings

Last week, the Income Strategy declined -1.28%, underperforming both the Merrill Lynch U.S. High Yield Master II Index’s -0.26% loss and the S&P 500’s -0.29% fall. (Exhibit 1). The strategy ended the week up 13.80% YTD, or 223 basis points ahead of the high yield index and 1,253 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 11/22/191

Time Period Income Strategy ML HY II S&P 500
Last Week (11/15 – 11/22) -1.28% -0.26% -0.29%
MTD 0.92% -0.17% 2.57%
QTD -0.39% 0.06% 4.79%
YTD 13.80% 11.57% 26.33%
Inception (annualized since 4/2/2009) 13.05% 10.92% 16.03%

Source: Bloomberg, Miller Value Partners

Equities comprised last week’s top five contributors (Exhibit 2). British American Tobacco (BATS LN) rose as the FDA dropped its proposed rule to reduce nicotine levels in cigarettes in its Fall 2019 agenda, and made no mention of a rule to ban menthol flavors. NGL Energy Partners (NGL) gained as multiple insiders, including CEO Michael Krimbill, purchased 150,000 shares at an average cost of $9.98. Seaspan (SSW) announced the acquisition of APR Energy for $750M, which will be financed with 38.3M new shares and $325M in debt. The deal is expected to close in 1Q20 and be accretive by 2021. Further, management announced a reorganization into a new holding company, ‘Atlas Corp’, which will own Seaspan and APR, as well as deploy capital in existing and additional verticals with a focus on infrastructure assets. William Hill (WMH LN) reported a solid Q3 trading update, where growth in Online (+26%) and Retail (-23%) were in-line while the US segment (+27%) came in above expectations driven by strong volume growth. The US expansion business doubled revenues and management announced the company is now operating in ten states with 26% total market share. There was no price-changing news on BGC Partners (BGCP).

Exhibit 2: Significant Contributors to Performance, 11/15/19 – 11/22/19

Name Type Return
British American Tobacco Equity 4.0%
NGL Energy Partners LP Equity 3.4%
Seaspan Corp Equity 3.8%
BGC Partners Equity 3.4%
William Hill plc Equity 3.3%

Source: Miller Value Partners

Equities also comprised last week’s top five detractors (Exhibit 3). Specialty Retailers Abercrombie & Fitch (ANF) and Chico’s (CHS) fell in sympathy with peer Urban Outfitters (URBN), who sank after reporting Q3 results that fell short of expectations and issuing a disappointing gross margin forecast. Chemours (CC) fell despite BMO maintaining their “Outperform” rating and $25 price target, 54% implied upside excluding the 6.2% dividend yield, citing expectations for a rebound in the TiO2 market given recent inventory destocking. Credit Suisse maintained Apollo Global (APO) as their top pick in the alternative asset manager’s space, driven by continued strength in fundraising and material upside from realized performance fees. There was no price-changing news on Quad Graphics (QUAD).

Exhibit 3: Significant Detractors from Performance, 11/15/19 – 11/22/19

Name Type Return
Abercrombie & Fitch Co Equity -13.7%
The Chemours Co Equity -12.9%
Chico’s FAS Equity -9.6%
Apollo Global Management Inc Equity -2.3%
Quad Graphics Equity -6.9%

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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