February 25, 2019

Income Strategy Update for Week Ended 2/22/19

National CineMedia Advances on Strong Earnings While Macquarie Infrastructure Falls on Weak Guidance

Last week, the Income Strategy advanced 0.50%, outperforming the Merrill Lynch U.S. High Yield Master II Index’s 0.35% rise, but underperforming the S&P 500’s 0.65% gain. (Exhibit 1). The strategy ended the week up 12.52% YTD, or 663 basis points ahead of the high yield index and 78 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 2/22/191

Time Period Income Strategy ML HY II S&P 500
Last Week (2/15 – 2/22) 0.50% 0.35% 0.65%
MTD 0.62% 1.24% 3.45%
QTD 12.52% 5.89% 11.74%
YTD 12.52% 5.89% 11.74%
Inception (annualized since 4/2/2009) 13.97% 11.20% 15.85%

Source: Bloomberg, Miller Value Partners

Four equities and a bond comprised last week’s top five contributors (Exhibit 2). National CineMedia (NCMI) reported Q4 revenue and OIBDA of $137M and $76M, both falling short of expectations of $140M and $81M, respectively. The miss, however, was not due to a lack of incoming demand from advertisers, but rather from an inability to place those ads with the end-of-quarter product mix. Management initiated FY19 revenue guidance of $450M-$465M, coming in ahead of consensus of $453.2M, while OIBDA of $207M-$217M missed expectations of $218M. Management noted upfront ad commitments are pacing 13% ahead of this time last year. The company maintained their $0.17/share dividend (8.7% annualized yield). Just Energy Group (JE CN) rose above its 100-day moving average and announced the repurchase of $60.2M of 6.5% convertible bonds due July 2019. Debt of Avon Products (AVP) rose as the company announced it completed the sale of its China manufacturing facility to TheFaceShop for net proceeds of $47M. Barings BDC (BBDC) moved above closely watched technical levels. There was no price-changing news on Tupperware Brands (TUP).

Exhibit 2: Significant Contributors to Performance, 2/15/19 – 2/22/19

Name Type Return
National CineMedia Equity 12.2%
Just Energy Group Inc Equity 5.2%
Tupperware Brands Corp Equity 4.2%
Avon Products 7.0 3/23 Bond 2.0%
Barings BDC Equity 3.1%

Source: Miller Value Partners

Equities comprised last week’s top five detractors (Exhibit 3). Macquarie Infrastructure Corp (MIC) reported Q4 EBITDA of $152.4M, falling short of estimates of $157.7M, driven by weakness in the company’s bulk liquid terminals segment. Management guided to FY19 EBITDA guidance of $610M-$635M, falling short of estimates of $634M. The company maintained their $1.00/share dividend (9.7% annualized yield). Arlington Asset Investment (AI) reported Q4 EPS of $0.44, beating estimates of $0.43 and covering the dividend of $0.375/share (18.3% annualized yield). Book value fell 12.5% to $8.71 as volatile market conditions led to widening spreads across fixed income products, but the company noted on the earnings call that book value through January is up 5.9% to $9.22. The company also issued 6M shares at $8.34 (0.9x P/B), a 4% discount to the prior day’s close for net proceeds of $50M. New Residential Investment (NRZ) issued 40.3M shares at $16.50 (1.05x P/B), a 3% discount to the prior day’s close for net proceeds of $665M. There was no company-specific news on Alternative Asset Managers Apollo Global (APO) or Carlyle Group (CG).

Exhibit 3: Significant Detractors from Performance, 2/15/2019 – 2/22/19

Name Type Return
Macquarie Infrastructure Corp Equity -7.4%
Arlington Asset Investment Corp Equity -6.9%
New Residential Investment Corp Equity -3.4%
Apollo Global Management LLC Equity -1.7%
Carlyle Group LP Equity -1.4%

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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