February 19, 2019

Income Strategy Update for Week Ended 2/15/19

NGL Energy Partners Advances on Strong Earnings While Alrosa Falls on Weak January Diamond Sales

Last week, the Income Strategy advanced 1.26%, outperforming the Merrill Lynch U.S. High Yield Master II Index’s 0.61% rise, but underperforming the S&P 500’s 2.56% gain. (Exhibit 1). The strategy ended the week up 11.96% YTD, or 644 basis points ahead of the high yield index and 94 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 2/15/191

Time Period Income Strategy ML HY II S&P 500
Last Week (2/8 – 2/15) 1.26% 0.61% 2.56%
MTD 0.12% 0.89% 2.78%
QTD 11.96% 5.52% 11.02%
YTD 11.96% 5.52% 11.02%
Inception (annualized since 4/2/2009) 13.94% 11.18% 15.85%

Source: Bloomberg, Miller Value Partners

Equities comprised last week’s top five contributors (Exhibit 2). NGL Energy Partners (NGL) advanced on strong quarterly results where EBITDA of $132.6M came in 5.4% above consensus of $125.8M, driven by better-than-expected results in the Crude, Liquid, and Water segments. Distributable Cash Flow of $84.9M provided coverage of 1.75x and drove a $0.39/share dividend (11.2% annualized yield). Management reaffirmed FY19 EBITDA guidance of $450M and announced plans to repurchase up to $150M of its shares. Seaspan (SSW) and Energy Transfer (ET) moved above closely watched technical levels. There was no price-changing news on Tupperware Brands (TUP) or Macquarie Infrastructure Corp (MIC).

Exhibit 2: Significant Contributors to Performance, 2/8/19 – 2/15/19

Name Type Return
NGL Energy Partners LP Equity 25.7%
Tupperware Brands Corp Equity 10.6%
Macquarie Infrastructure Corp Equity 3.6%
Seaspan Corp Equity 6.3%
Energy Transfer LP Equity 4.6%

Source: Miller Value Partners

Equities comprised last week’s top five detractors (Exhibit 3). Alrosa (ALRS RX) fell on weak January sales results of $282M, down -12% M/M and -44% Y/Y, driven by lower than usual market activity. Shares fell below their 50 and 100-day moving averages. Just Energy Group (JE CN) closed the week below its 100-day moving average. Chimera Investment Corp (CIM) reported Q4 EPS of $0.58, in-line with consensus and covering the dividend of $0.50/share (10.8% annualized yield). Book value fell -6.6% to $15.90 while the investment portfolio increased by $2.4B (+8%) on the back of Agency MBS growth. Macquarie upgraded Cedar Fair (FUN) from “Neutral” to “Outperform” and raised their price target to $60, 16% implied upside excluding the 7.2% dividend yield. The analyst cites pass sales growth of 25% Y/Y and sees any bad news as already priced in. There was no price-changing news on Greenhill (GHL).

Exhibit 3: Significant Detractors from Performance, 2/8/2019 – 2/15/19

Name Type Return
Greenhill & Co Equity -6.3%
Alrosa PJSC Equity -3.5%
Just Energy Group Inc Equity -2.7%
Chimera Investment Corp Equity -3.3%
Cedar Fair Equity -5.7%

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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