March 23, 2020

Income Strategy Update for Week Ended 3/20/20

NGL Energy Partners Rises on Reaffirmed FY20 Guidance While Alternative Asset Managers Fall

Last week, the Income Strategy declined -17.02%, underperforming both the Merrill Lynch U.S. High Yield Master II Index’s -10.55% fall and the S&P 500’s -14.95% loss. (Exhibit 1). The strategy ended the week down -39.59% YTD, or 2,086 basis points behind the high yield index and 1,126 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 3/20/201

Time Period Income Strategy ML HY II S&P 500
Last Week (3/13 – 3/20) -17.02% -10.55% -14.95%
MTD -33.33% -17.45% -21.87%
QTD -39.59% -18.73% -28.33%
YTD -39.59% -18.73% -28.33%
Inception (annualized since 4/2/2009) 8.52% 8.77% 12.50%

Source: Bloomberg, Miller Value Partners

An equity and one bond comprised last week’s two contributors. NGL Energy Partners (NGL) provided a business update, whereby they reaffirmed FY20 EBITDA guidance of $565M-$595M and expects FY21 growth capex of just $50M (vs consensus of $117M) and $1.5Bn outstanding on their $1.9Bn revolving credit facility. There was no price-changing news on the debt of Chaparral Energy (CHAP).

Exhibit 2: Significant Contributors to Performance, 3/13/20 – 3/20/20

Name Type Return
NGL Energy Partners LP Equity 9.3%
Chaparral Energy 8.75% 7/23 Bond 0.9%

Source: Miller Value Partners

Three equities and two bonds comprised last week’s top five detractors. Alternative asset managers Apollo Global Management (APO) and Carlyle Group (CG) fell in conjunction with the broad equity market. Further, Morgan Stanley noted they are becoming more positive on Apollo given their distressed-oriented investing style that could accelerate deployment activity and notes shares are attractively valued with a 10x forward PE and 10% management fee earnings yield. Debt of Bed Bath & Beyond (BBBY) fell as the company announced the temporary closure of 50% of their stores. Management cited they will continue to operate stores that sell essential health and personal care products, as well as enhance e-commerce and distribution capabilities. Diebold Nixdorf (DBD) proactively drew down $325.9M under their revolving credit facility in order to maintain near-term flexibility and get in front of any potential disruptions stemming from COVID-19. SunTrust cut their price target on Cedar Fair (FUN) to $18, 2% downside offset by the 20.5% dividend yield.

Exhibit 3: Significant Detractors from Performance, 3/13/20 – 3/20/20

Name Type Return
Apollo Global Management Equity -25.3%
Bed Bath & Beyond 5.165% 8/44 Bond -24.9%
Diebold Nixdorf 8.5% 4/24 Bond -12.2%
Cedar Fair Equity -32.1%
Carlyle Group Equity -17.6%

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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