March 2, 2020

Income Strategy Update for Week Ended 2/28/20

Sole Contributor Rises on Light News While the Coronavirus Sinks Chemours, Alrosa on Demand Fears

Last week, the Income Strategy declined -9.93%, underperforming the Merrill Lynch U.S. High Yield Master II Index’s -2.74% fall but outperforming the S&P 500’s -11.44% decline. (Exhibit 1). The strategy ended the week down -9.39% YTD, or 781 basis points behind the high yield index and 112 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 2/28/201

Time Period Income Strategy ML HY II S&P 500
Last Week (2/21 – 2/28) -9.93% -2.74% -11.44%
MTD -7.38% -1.58% -8.23%
QTD -9.39% -1.58% -8.27%
YTD -9.39% -1.58% -8.27%
Inception (annualized since 4/2/2009) 12.66% 10.73% 15.12%

Source: Bloomberg, Miller Value Partners

Debt of Ultra Petroleum (UPLC) was the single contributor to performance last week, though there was no company-specific news that drove the move (Exhibit 2).

Exhibit 2: Significant Contributors to Performance, 2/21/20 – 2/28/20

Name Type Return
Ultra Petroleum 7.125 04/25 Bond 7.5%

Source: Miller Value Partners

Equities comprised last week’s top five detractors (Exhibit 3). The spread of the Coronavirus drove fears of weakening near-term demand for performance chemicals maker Chemours (CC) and diamond-miner Alrosa (ALRS RX). William Hill (WMH LN) reported FY19 revenue of £1,582M, missing consensus of £1,640M by 3.5%. EBITDA of £271M beat estimates of £246M while EBIT of £147M was 2% above consensus and at the top end of management’s guidance of £143M-£148M. The company maintained their £8/share dividend (5.5% annualized yield). For FY20, management sees net revenue growth for the Online segment, Retail EBIT of £50M-£60M, and expects the US to break-even despite launching in eight new states. Gannett (GCI) fell despite posting solid Q4 results with revenue of $699M and EBITDA of $99M, both beating consensus of $659M and $76M, respectively. Management noted significant progress in the integration with New Media with $60M in annualized synergies expected by the end of Q1 and $300M by year-end 2021. The company also announced $100M-$125M of real estate sales over the next two years with the proceeds going towards debt reduction. Carlyle Group (CG) fell below its 100-day moving average in conjunction with the broad equity market.

Exhibit 3: Significant Detractors from Performance, 2/21/20 – 2/28/20

Name Type Return
The Chemours Co Equity -22.4%
William Hill plc Equity -23.5%
Alrosa PJSC Equity -17.9%
Gannett Co Inc. Equity -28.8%
Carlyle Group Inc. Equity -9.0%

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 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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