March 9, 2020

Income Strategy Update for Week Ended 3/6/20

Erdemir Rises on Dividend, New Buyback while NGL Energy Partners Falls with Oil

Last week, the Income Strategy declined -4.91%, underperforming both the Merrill Lynch U.S. High Yield Master II Index’s -0.45% fall and the S&P 500’s 0.65% increase. (Exhibit 1). The strategy ended the week down -13.84% YTD, or 1185 basis points behind the high yield index and 617 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 3/6/201

Time Period Income Strategy ML HY II S&P 500
Last Week (2/28 – 3/6) -4.91% -0.45% 0.65%
MTD -4.91% -0.45% 0.65%
QTD -13.84% -1.99% -7.67%
YTD -13.84% -1.99% -7.67%
Inception (annualized since 4/2/2009) 12.12% 10.66% 15.16%

Source: Bloomberg, Miller Value Partners

Three bonds and two equities comprised last week’s top five contributors. Erdemir (EREGL TI) declared a dividend of TRY 1.2/share (13.5% annualized yield) and announced a three year share buyback program allowing the company to buy up to 10% of issued share capital with a max price 25% above book value. Bernstein upgraded British American Tobacco (BATS LN) from “Market Perform” to “Outperform” with a GBP 3,900 price target, 26% implied upside excluding the 6.8% dividend yield, noting new CEO Jack Bowles’ restructuring initiatives have accelerated growth and driven a vast rise in next-generation products. Extraction Oil & Gas (XOG) reported solid Q4 results with EBITDAX of $205M, topping consensus of $176M by 16%. Production of 111.1 Mboepd was 10% above estimates of 100.5 while oil volumes of 50.1 Mbopd was +28% sequentially and 3% above consensus. For FY20, management guided to total production of 90-95 Mboepd, bracketing consensus of 93.2 Mboepd on capex of $485M-$555M. There was no price changing news on the debt of either Endo International (ENDP) or Bombardier (BBD/B CN).

Exhibit 2: Significant Contributors to Performance, 2/28/20 – 3/6/20

Name Type Return
Erdemir Equity 10.4%
Endo International PLC 6.0 7/23 Bond 2.7%
British American Tobacco PLC Equity 3.1%
Extraction Oil & Gas 7.375 5/24 Bond 10.3%
Bombardier 7.875 04/27 Bond 0.7%

Source: Miller Value Partners

Four equities and a bond comprised last week’s top five detractors. NGL Energy Partners (NGL) fell as oil prices sank on continued fears of weak demand stemming from the Coronavirus, as well as OPEC negotiations breaking down late last week. Insiders though, including CEO Mike Krimbill, purchased 176,000 shares for $1.3M. Moody’s reaffirmed Quad Graphics’ (QUAD) corporate family rating at B1 but changed their outlook from “stable” to “negative”. Alternative asset manager Carlyle Group (CG) fell below its 200-day moving average and in conjunction with the broad equity market. MKM maintained their “Neutral” rating on Chico’s FAS (CHS) with a $4.50 price target, 39% implied upside excluding the 11.1% dividend yield, noting continued strength in Soma comp sales, reduced China exposure, and better inventory management. Further, two new Board members purchased 99,800 shares totaling $399,000. There was no price changing news on the debt of Diebold Nixdorf (DBD).

Exhibit 3: Significant Detractors from Performance, 2/28/20 – 3/6/20

Name Type Return
NGL Energy Partners LP Equity -23.8%
Quad Graphics Equity -17.5%
Carlyle Group Inc Equity -7.3%
Chico’s, Inc. Equity -19.2%
Diebold Nixdorf 8.5 4/24 Equity -5.2%

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.

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