April 23, 2018

Income Strategy Update for Week Ended 4/20/18

Seaspan Advances on Deutsche Bank Upgrade While Mall REITs Fall on Bon-Ton Stores Liquidation

Last week, the Income Strategy advanced 0.84%, outperforming both the Merrill Lynch U.S. High Yield Master II Index’s -0.12% decline and the S&P 500’s 0.54% gain (Exhibit 1). The strategy ended the week up 1.56% YTD, or 146 basis points ahead of the high yield index and 112 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 4/20/181

Time Period Income Strategy ML HY II S&P 500
Last Week (4/13 – 4/20) 0.84% -0.12% 0.54%
MTD 2.80% 1.02% 1.21%
QTD 2.80% 1.02% 1.21%
YTD 1.56% 0.10% 0.44%
Inception (annualized since 4/2/2009-3/31/18) 14.92% 11.76% 16.67%

Source: Bloomberg, Miller Value Partners

Five equities comprised last week’s top five contributors (Exhibit 2). Deutsche Bank upgraded shipping operator Seaspan (SSW) from “Hold” to “Buy” with a $13 price target, 70.8% above where it currently trades. The analyst expects deleveraging and dividend growth to drive substantial share appreciation as the company books long-term charters with returns in excess of their cost of capital. Further, Seaspan COO and General Counsel, Mark Chu, announced he is stepping down to pursue other opportunities, but will remain with the company through August 31st to facilitate a smooth transition. Hi-Crush Partners (HCLP) advanced as the company increased their dividend 12.5% to $0.225/share (7.4% annualized yield), and gave an update on their buyback program, where they repurchased 753,090 shares during 1Q18 for a total of $9.4M. Management plans to execute on the remaining $70M of repurchases (6.6% of the market capitalization) under their current program. Blackstone Group (BX) advanced after posting strong Q1 economic net income per share of $0.65, surpassing consensus estimates of $0.63 and their dividend of $0.35 (4.2% annualized yield), while assets grew 22% YoY to a record of $449.6B. The company raised its unit repurchase authorization to $1B and announced plans for a special distribution of $0.30/unit to be paid in $0.10/unit tranches across the final three quarters in 2018. The impressive performance was driven by robust returns in private equity, real estate and credit portfolios. Peer Carlyle Group (CG) rose in conjunction with Blackstone’s results. Maiden Holdings (MHLD) advanced every day of the week as it rose above its 200-day moving average.

Exhibit 2: Significant Contributors to Performance, 4/13/18 – 4/20/18

Name Type Return
 Maiden Holdings Ltd Equity 12.2%
 Seaspan Corp Equity 15.3%
 Carlyle Group LP Equity 3.1%
 Hi-Crush Partners LP Equity 3.4%
 Blackstone Group LP Equity 4.9%

Source: Miller Value Partners

Four equities and a preferred comprised last week’s top five detractors (Exhibit 3). Mall REITs Washington Prime Group (WPG) and CBL & Associates (CBL) fell after retail chain Bon-Ton Stores announced they are liquidating after the company failed to secure a bid that would have helped to keep a portion of their 200 stores open. Preferred shares of AmTrust Financial Services (AFSI) fell below their 50-day moving average. There was no price-changing news on Abercrombie & Fitch (ANF).

Exhibit 3: Significant Detractors from Performance, 4/13/2018 – 4/20/18

Name Type Return
 Washington Prime Group Equity -10.5%
 Abercrombie & Fitch Co Equity -7.0%
 CBL & Associates Equity -8.6%
 AmTrust Financial Services 6.95% Preferred -2.1%

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 fee 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.

©2018 Miller Value Partners, LLC

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