October 7, 2019
Income Strategy Update for Week Ended 10/4/19
William Hill Advances in Sympathy with Stars Group Acquisition While Retailers, Alternative Asset Managers Fall
Last week, the Income Strategy declined -2.97%, underperforming both the Merrill Lynch U.S. High Yield Master II Index’s -0.46% fall and the S&P 500’s -0.30% loss. (Exhibit 1). The strategy ended the week up 11.14% YTD, or 12 basis points ahead of the high yield index and 845 basis points behind the S&P 500.
Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 10/4/191
|Time Period||Income Strategy||ML HY II||S&P 500|
|Last Week (9/27 – 10/4)||-2.97%||-0.46%||-0.30%|
|Inception (annualized since 4/2/2009)||12.98%||11.01%||15.65%|
Source: Bloomberg, Miller Value Partners
Equities comprised last week’s top five contributors (Exhibit 2). William Hill (WMH LN) advanced in sympathy with peer Stars Group (TSG), who is being acquired by Flutter Entertainment (FLTR LN) in an all stock deal. Further, William Hill announced a sports betting partnership with the NBA, allowing the company to use official NBA betting data and league marks across its mobile platforms and sports books throughout the United States. Raymond James remains bullish on NGL Energy Partners (NGL) following their $600M water acquisition at 7x EBITDA, which they expect will bolster NGL’s Delaware footprint. Shares closed the week above their 50-day moving average. Cedar Fair (FUN) gained on a Reuters report stating the company received but refused a $70/share offer from Six Flags (SIX). Goldman Sachs is forecasting sequential September sales growth for Alrosa (ALRS RX) given positive results from peer De Beers in its last sales cycle and positive comments from Alrosa’s management. There was no price-changing news on Just Energy (JE CN).
Exhibit 2: Significant Contributors to Performance, 9/27/19 – 10/4/19
|William Hill plc||Equity||3.2%|
|NGL Energy Partners LP||Equity||2.2%|
|Cedar Fair LP||Equity||1.0%|
|Just Energy Group||Equity||4.6%|
Source: Miller Value Partners
Equities and a bond comprised last week’s top five detractors (Exhibit 3). Retailers Chico’s FAS (CHS) and Abercrombie & Fitch (ANF) fell last week in sympathy with news Forever 21 is filing for bankruptcy. Citigroup remains bullish on Abercrombie, however, with a Buy rating and $29 price target, 104% implied upside excluding the 5.6% dividend yield, citing strong US brands and attractive valuation at 2x EV/EBITDA. Alternative asset managers Sculptor Capital (SCU) and Carlyle Group (CG) declined with the broad equity market. Sculptor reported AUM of $31.6Bn, a decline of 5% month-over-month while September performance came in at -0.97% (+9% year-to-date). Citi reaffirmed their Buy rating and $46 price target, 169% implied upside. Morgan Stanley believes Carlyle has greater exposure to Senator Elizabeth Warren’s proposed private equity regulation given half of their earnings are driven by their private equity segment.
Exhibit 3: Significant Detractors from Performance, 9/27/19 – 10/4/19
|***RECENTLY ADDED SECURITY***||Bond||-29.5%|
|Sculptor Capital Management||Equity||-15.8%|
|Abercrombie & Fitch Co||Equity||-7.2%|
|Carlyle Group LP||Equity||-3.5%|
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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