May 4, 2020

Income Strategy Update for Week Ended 5/1/20

Debt of Bed Bath & Beyond Advances as Online Sales Surge While Carlyle Group Falls Despite In-Line Quarter

Last week, the Income Strategy advanced 3.82%, outperforming both the Merrill Lynch U.S. High Yield Master II Index’s 0.53% gain and the S&P 500’s -0.19% loss. (Exhibit 1). The strategy ended the week down -32.45% YTD, or 2,238 basis points behind the high yield index and 2,062 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 5/1/201

Time Period Income Strategy ML HY II S&P 500
Last Week (4/24 – 5/1) 3.82% 0.53% -0.19%
MTD -2.16% -0.28% -2.80%
QTD 9.68% 3.51% 9.67%
YTD -32.45% -10.07% -11.83%
Inception (annualized since 4/2/2009) 9.51% 9.66% 14.46%

Source: Bloomberg, Miller Value Partners

Three bonds and two equities comprised last week’s top five contributors. Debt of Bed Bath & Beyond (BBBY) rose as the company announced an 85% surge in online sales for the period April to-date. Management noted they turned 25% of its stores across the US and Canada into regional fulfillment centers, nearly doubling digital fulfillment capacity while also introducing curbside pick-up and delivery at a number of locations across the country. Further, the company announced additional senior management hires, including Gustavo Arnal as CFO (former Avon CFO) and Rafeh Masood as Chief Digital Officer (former Chief Digital officer at BJ’s Wholesale Club). Quad Graphics (QUAD) rose above its 50-day moving average in sympathy with peer RR Donnelley (RRD), who reported better-than-expected top and bottom-line Q1 results. Debt of Curo Group (CURO) advanced after the company reported Q1 revenue of $281M (+1% Y/Y), ahead of consensus of $259.4M. EPS of $0.77 missed consensus of $0.89, driven by a $113.5M loan-loss provision, but nicely covered the quarterly dividend of $0.055/share. The company ended the quarter with $215.5M of available liquidity and suspended the $25M share repurchase program. Debt of NGL Energy Partners (NGL) jumped after the company guided to FY20 EBITDA at the high-end of their previously announced guidance range of $565M-$595M.  Management initiated FY21 EBITDA guidance of $600M, 8% above consensus estimates of $555M. The company cut their annual distribution by 49% to $0.80/share, a 14.1% annualized yield. Chico’s FAS (CHS) provided a COVID-19 business update, including same-store sales growth of +2.7% in the four weeks to February 29th, a current cash balance of $103M, the suspension of the dividend, and a cost restructuring plan of 30%. The company also promoted Molly Langenstein, President of Chico’s and White House Black Market, to CEO and President of Chico’s. Current CEO Bonnie Brooks will move to Executive Chair.

Exhibit 2: Significant Contributors to Performance, 4/24/20 – 5/1/20

Name Type Return
Bed Bath & Beyond 5.165% 8/44 Bond 13.6%
Quad Graphics Equity 27.2%
Curo Group 8.25% 9/25 Bond 9.8%
NGL Energy Partners 7.5% 4/26 Bond 30.8%
Chico’s FAS Equity 39.7%

Source: Miller Value Partners

A smattering of asset types comprised last week’s top five detractors. Carlyle Group (CG) reported Q1 distributable earnings of $0.48, topping consensus of $0.40 and nicely covering the dividend of $0.25/share (4.6% annualized yield). Fee-related earnings of $99M missed slightly while net realized performance fees of $48M was in-line. Net accrued performance fees fell 30% sequentially to $3.45/share with performance in private equity and real estate of -8% and -12%, respectively. Fundraising remained solid at $7.5Bn with deployment of $3Bn over the period. Activist Hestia Capital reported a 5.11% stake in GameStop (GME) and is seeking Board representation in an effort to further reduce costs and optimize the company’s unique asset base. There was no price-changing news on the debt of Diebold-Nixdorf (DBD).

Exhibit 3: Significant Detractors from Performance, 4/24/20 – 5/1/20

Name Type Return
Diebold Nixdorf 8.5% 4/24 Bond -2.0%
***RECENTLY ADDED SECURITY*** Equity -5.2%
Carlyle Group Bond -1.8%
GameStop 6.75% 3/21 Bond -0.8%
***RECENTLY ADDED SECURITY*** Bond -0.3%

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.

©2019 Miller Value Partners, LLC

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