March 30, 2020

Income Strategy Update for Week Ended 3/27/20

Alternative Asset Managers Advance While NGL Energy Falls Following Stifel’s Lowered Price Target

Last week, the Income Strategy advanced 5.38%, matching the Merrill Lynch U.S. High Yield Master II Index’s 5.38% gain but underperforming the S&P 500’s 10.28% rise. (Exhibit 1). The strategy ended the week down -36.34% YTD, or 2,199 basis points behind the high yield index and 1,538 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 3/27/201

Time Period Income Strategy ML HY II S&P 500
Last Week (3/20 – 3/27) 5.38% 5.38% 10.28%
MTD -29.75% -13.01% -13.84%
QTD -36.34% -14.35% -20.96%
YTD -36.34% -14.35% -20.96%
Inception (annualized since 4/2/2009) 9.01% 9.26% 13.46%

Source: Bloomberg, Miller Value Partners

Four equities and a bond comprised last week’s five contributors. Alternative asset managers Apollo Global Management (APO) and Carlyle Group (CG) rose in conjunction with the broad equity market. Further, Barclays maintained their bullish stance on the sector following its recent pullback, noting the group is trading at a 25% discount to the market despite better long-term growth prospects with sticky, mid-to-high single digit fee-related earnings yields. Theme park operator Cedar Fair (FUN) gained with the passage of the Coronavirus Aid, Relief and Economic Security (CARES) Act, allowing the company to take advantage of payroll tax credits and the deferral of employer Social Security payroll tax payments. Abercrombie & Fitch (ANF) provided a business update, including a $210M drawdown on their revolving credit facility, the withdraw of $50M of excess funds from its Rabbi Trust, and the temporary suspension of share buybacks. Management remains confident in their liquidity position and noted all stores outside Asia Pacific will remain closed until further notice. There was no price-changing news on the debt of CenturyLink (CTL).

Exhibit 2: Significant Contributors to Performance, 3/20/20 – 3/27/20

Name Type Return
Apollo Global Management Equity 32.1%
Carlyle Group Equity 17.3%
Cedar Fair Equity 24.2%
CenturyLink 7.6% 9/39 Bond 6.3%
Abercrombie & Fitch Co Equity 14.0%

Source: Miller Value Partners

Four equities and a bond comprised last week’s top five detractors. Stifel maintained their “Hold” rating on NGL Energy Partners (NGL) following management’s reiteration of full-year guidance, but lowered their price target from $12 to $8, 230% implied upside. The analyst noted the company’s lower capex budget should allow them to remain free cash flow positive in 2021. BGC Partners (BGCP) fell after providing a Q1 operational update, including a $230M drawdown on their revolver and a reduction in the quarterly dividend to $0.01/share (1.6% annualized yield). Management, though, expects results to come in better-than previously announced guidance of revenue of $540M-$580M and pre-tax earnings of $90M-$106M. Goldman Sachs maintained their “Buy” rating and RUB 360 price-target on Sberbank (SBER LI), 97% implied upside excluding the 10.2% dividend yield, noting that even in a depressed scenario, the bank would still generate a 10%+ ROE. There was no price-changing news on the debt of Curo Group (CURO).

Exhibit 3: Significant Detractors from Performance, 3/20/20 – 3/27/20

Name Type Return
NGL Energy Partners Equity -36.9%
BGC Partners Equity -20.9%
Sberbank Equity -7.8%
Curo Group 8.25% 9/25 Bond -5.4%

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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