November 11, 2019

Income Strategy Update for Week Ended 11/8/19

Retailers Advance on Trade War Hopes While Alternative Asset Managers Fall

Last week, the Income Strategy declined -0.13%, underperforming both the Merrill Lynch U.S. High Yield Master II Index’s 0.03% gain and the S&P 500’s 0.93% advance. (Exhibit 1). The strategy ended the week up 14.24% YTD, or 230 basis points ahead of the high yield index and 1,128 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 11/8/191

Time Period Income Strategy ML HY II S&P 500
Last Week (11/1 – 11/8) -0.13% 0.03% 0.93%
MTD 1.31% 0.16% 1.91%
QTD 0.00% 0.39% 4.12%
YTD 14.24% 11.94% 25.52%
Inception (annualized since 4/2/2009) 13.15% 10.99% 16.02%

Source: Bloomberg, Miller Value Partners

Equities comprised last week’s top five contributors (Exhibit 2). Specialty retailers Chico’s FAS (CHS) and Abercrombie & Fitch (ANF) advanced on trade war hopes as reports surfaced that the US and China continue to move closer to signing a phase one deal, including tariff rollbacks. Chico’s and Abercrombie would be beneficiaries of an agreement as they both source from China. Chemours (CC) rose on a solid quarter where revenue of $1.39B topped consensus of $1.36B. EBITDA of $248M was just shy of estimates while EPS of $0.59 beat by $0.02 and nicely covered the dividend of $0.25/share (5.1% annualized yield). Management reaffirmed FY19 guidance for EBITDA ($1.0B-$1.15B), EPS ($2.37-$3.08), and free cash flow ($100M). CenturyLink (CTL) gained after reporting revenue and EBITDA of $5.61B and $2.26B, both topping consensus of $5.53B and $2.25B, respectively driven by upside from Enterprise. The company maintained its quarterly dividend of $0.25/share (6.7% annualized yield) and reaffirmed FY19 guidance for EBITDA ($9.0B-$9.2B) and free cash flow ($3.1B-$3.4B). Net leverage improved to 3.7x (from 3.8x) and management continues to target a range of 2.75x-3.25x over the next three years. BGC Partners (BGCP) rose above closely watched technical levels and formed a golden cross.

Exhibit 2: Significant Contributors to Performance, 11/1/19 – 11/8/19

Name Type Return
The Chemours Co Equity 11.5%
Chico’s FAS, Inc. Equity 5.7%
BGC Partners Equity 5.6%
CenturyLink, Inc. Equity 11.0%
Abercrombie & Fitch Co. Equity 3.9%

Source: Miller Value Partners

Equities also comprised last week’s top five detractors (Exhibit 3). Alternative asset managers Apollo Global (APO) and Sculptor Capital (SCU) fell last week despite strength in the broad equity market. Apollo held their investor day where they outlined their plans to double AUM over the next five years from $323B to $600B and in turn double fee-related earnings to $3.40 with realizations adding another $1.50-$2.00/share. Sculptor reported core distributable earnings of $0.32, topping estimates of $0.28 driven by a $10M beat in incentive income. Assets under management of $32B was in-line with estimates, and performance remained strong at 10.5% YTD through October. William Hill (WMH LN) sank on reports that the All-Party Parliament Group on Gambling Related Harm is calling for a proposal that includes a £2 stake limit on online slot machines, as well as an end to betting by credit cards and restrictions on VIP accounts. National CineMedia (NCMI) reported revenue and OIBDA of $110M and $52M, both missing consensus of $119M and $58M, respectively driven by weaker national advertising as a result of cancelled campaigns and weaker regional demand. EPS of $0.12 fell short by a penny and missed the quarterly dividend of $0.17/share (9.0% annualized yield). Management lowered FY19 revenue guidance to $435M-$445M (from $450M-$465M) and OIBDA to $195M-$205M (from $207M-$217M). Seaspan (SSW) fell despite posting solid results. Revenue of $282.7M and EBITDA of $180.0M both beat consensus of $281.6M and $172.2M, respectively. Adjusted EPS of $0.21 also topped estimates of $0.17 and covered the quarterly dividend of $0.125/share (4.6% annualized yield). Management continues to strengthen the balance sheet, paying back $264M in debt over the period.

Exhibit 3: Significant Detractors from Performance, 11/1/19 – 11/8/19

Name Type Return
William Hill plc Equity -15.6%
National CineMedia Equity -9.6%
Apollo Global Management, Inc. Equity -2.3%
Sculptor Capital Management Equity -6.9%
Seaspan Corp Equity -4.3%

Source: Miller Value Partners


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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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