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%
MTD -2.72% -0.44% -0.80%
QTD -2.72% -0.44% -0.80%
YTD 11.14% 11.02% 19.59%
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

Name Type Return
William Hill plc Equity 3.2%
NGL Energy Partners LP Equity 2.2%
Cedar Fair LP Equity 1.0%
Alrosa Equity 1.7%
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

Name Type Return
Chico’s FAS Equity -14.0%
Sculptor Capital Management Equity -15.8%
Abercrombie & Fitch Co Equity -7.2%
Carlyle Group LP Equity -3.5%

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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