February 11, 2019

Income Strategy Update for Week Ended 2/8/19

Alternative Asset Managers Rise While Just Energy Falls Despite Strong Quarterly Results

Last week, the Income Strategy declined -1.36%, underperforming both the Merrill Lynch U.S. High Yield Master II Index’s 0.16% rise and the S&P 500’s 0.11% gain. (Exhibit 1). The strategy ended the week up 10.57% YTD, or 568 basis points ahead of the high yield index and 233 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 2/8/191

Time Period Income Strategy ML HY II S&P 500
Last Week (2/1 – 2/8) -1.36% 0.16% 0.11%
MTD -1.12% 0.28% 0.21%
QTD 10.57% 4.89% 8.24%
YTD 10.57% 4.89% 8.24%
Inception (annualized since 4/2/2009) 13.84% 11.15% 15.59%

Source: Bloomberg, Miller Value Partners

Four equities and a bond comprised last week’s top five contributors (Exhibit 2). Alternative Asset Managers Apollo Global Management (APO) and Blackstone (BX) rose over the week. JP Morgan increased their price target on Apollo to $34 (from $33), 14% implied upside excluding the 7.5% dividend yield. Citi increased their price target on Blackstone to $43.50 (from $40.50), 30% implied upside excluding the 7% dividend yield. Debt of Avon Products (AVP) was lifted by peers Coty (COTY) and Estee Lauder (EL), both of whom posted better-than-expected quarterly results. National CineMedia (NCMI) and Compass Diversified Holdings (CODI) rose above closely watched technical levels.

Exhibit 2: Significant Contributors to Performance, 2/1/19 – 2/8/19

Name Type Return
National CineMedia Equity 4.5%
Avon Products 7% 3/23 Bond 2.3%
Apollo Global Management Equity 1.6%
Blackstone Group LP Equity 1.0%
Compass Diversified Holdings Equity 2.1%

Source: Miller Value Partners

Equities comprised last week’s top five detractors (Exhibit 3). Just Energy Group (JE CN) fell despite reporting strong fiscal Q3 EBITDA of C$58.2M (+11% Y/Y), beating consensus estimates of C$57.5M, driven by an increase in gross margins. The company maintained their C$0.125/share dividend (10.9% annualized yield) and improved their payout ratio to 67%. Management reiterated FY19 EBITDA guidance of C$200-$220M, +15% Y/Y at the midpoint. Shares fell on the heels of these results, leaving some fundamental analysts scratching their heads. However, the company’s second-largest shareholder passed away just prior to the earnings report, causing some speculation around the fate of Jetport’s 17.8M shares. Carlyle Group (CG) reported distributable earnings of $0.57, well ahead of consensus of $0.36 and drove a $0.43/share dividend (9.2% annualized yield). Fee-paying AUM rose 8% sequentially to $160B while deployment activity and fundraising both remained strong at $11.5B and $7.1B, respectively. Management guided to $400M in 2019 fee-related earnings with margins of ~25%. Seaspan (SSW) fell below closely watched technical levels. Sberbank (SBER LI) declined on news President Putin expressed concerns that acquiring fees in Russia are too high and causing an obstacle for growth in cashless transactions, potentially posing a risk to the earnings of Russian banks. There was no price-changing news on NGL Energy Partners (NGL).

Exhibit 3: Significant Detractors from Performance, 2/1/2019 – 2/8/19

Name Type Return
Just Energy Group Inc Equity -5.0%
Carlyle Group LP Equity -3.3%
NGL Energy Partners LP Equity -5.7%
Seaspan Corp Equity -6.8%
Sberbank Equity -4.6%

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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