April 1, 2019

Income Strategy Update for Week Ended 3/29/19

Macquarie Infrastructure Moves Above Closely Watched Technical Levels While New Media Falls Despite Citi Upgrade

Last week, the Income Strategy advanced 0.66%, outperforming the Merrill Lynch U.S. High Yield Master II Index’s 0.40% gain but underperforming the S&P 500’s 1.23% rise. (Exhibit 1). The strategy ended the week up 10.60% YTD, or 322 basis points ahead of the high yield index and 305 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 3/29/191

Time Period Income Strategy ML HY II S&P 500
Last Week (3/22 – 3/29) 0.66% 0.40% 1.23%
MTD -1.09% 0.96% 1.94%
QTD 10.60% 7.38% 13.65%
YTD 10.60% 7.38% 13.65%
Inception (annualized since 4/2/2009) 13.63% 11.24% 15.93%

Source: Bloomberg, Miller Value Partners

A smattering of asset types comprised last week’s top five contributors (Exhibit 2). The top contributor, Macquarie Infrastructure Corp (MIC), saw little news but rose above its 50 and 200-day moving averages. Seaspan (SSW) gave an update on its Swiber Holdings investment and noted the first investment tranche has been reduced to $10M (from $20M) for an 80% equity interest in a newly incorporated holdings company consisting of certain Swiber assets. Further, the potential second investment tranche has been increased to $190M (from $180M). Seaspan shares closed the week above their 50 and 200-day moving averages. Debt of Ascena Retail Group (ASNA) rose after the company announced the sale of a majority interest in their Maurices Incorporated subsidiary to OpCapita. The transaction is valued at $300M (~3.5x EBITDA), consisting of $200M in cash that will be used to pay down debt and $100M in equity. Citi added Sberbank (SBER LI) to its Focus List with a RUB 285 price target, 33% implied upside, citing attractive valuation at 5x 2019e earnings and 1.05x P/B. The analyst adds Sberbank is getting closer to its annual dividend forecast of 9.5% and is bullish on oil, which could boost the Ruble. There was no price-changing news on the debt of Avon Products (AVP).

Exhibit 2: Significant Contributors to Performance, 3/22/19 – 3/29/19

Name Type Return
Macquarie Infrastructure Corp Equity 3.7%
Seaspan Corp Equity 8.9%
Ascena Retail Group TL B 1L 08/22 Term Loan 5.2%
Sberbank Equity 2.4%
Avon Products 7.0% 3/23 Bond 1.6%

Source: Miller Value Partners

Four equities and a bond comprised last week’s top five detractors (Exhibit 3). New Media Investment Group (NEWM) fell despite Citi upgrading the stock to Neutral with a $10 price target, 4.8% implied downside more than offset by the 14.4% dividend yield. The analyst cites a more balanced risk-reward profile as EBITDA and FCF have stabilized on the backs of steady M&A. Alrosa (ALRS RX) fell on a cautious note from UBS citing expectations for a weak near-term outlook on the diamond market. National CineMedia (NCMI) and Danske Bank (DANSKE DC) both fell below their 50-day moving averages on little news.

Exhibit 3: Significant Detractors from Performance, 3/22/2019 – 3/29/19

Name Type Return
New Media Investment Group Equity -8.5%
Alrosa Equity -4.4%
National CineMedia Equity -3.0%
Danske Bank Equity -4.6%
***RECENTLY ADDED SECURITY*** Bond -1.4%

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.

©2019 Miller Value Partners, LLC

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