May 13, 2019

Income Strategy Update for Week Ended 5/10/19

National CineMedia Advances on Strong Growth Outlook While BGC Partners Declines Despite Posting Solid Results

Last week, the Income Strategy declined -1.24%, underperforming the Merrill Lynch U.S. High Yield Master II Index’s -0.55% fall, but outperforming the S&P 500’s -2.10% loss. (Exhibit 1). The strategy ended the week up 13.44% YTD, or 513 basis points ahead of the high yield index and 233 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 5/10/191

Time Period Income Strategy ML HY II S&P 500
Last Week (5/3 – 5/10) -1.24% -0.55% -2.10%
MTD -0.50% -0.55% -2.09%
QTD 2.57% 0.84% 1.87%
YTD 13.44% 8.31% 15.77%
Inception (annualized since 4/2/2009) 13.75% 11.21% 15.95%

Source: Bloomberg, Miller Value Partners

Three equities and two bonds comprised last week’s top five contributors (Exhibit 2). National CineMedia (NCMI) reported Q1 revenues and OIBDA of $76.9M and $22.1M, both missing estimates of $82.2M and $22.7M, respectively. Management maintained 2019 guidance, suggesting growth in the 3%-4% range at the midpoint and cited expectations for stronger growth in the second half of the year via an impressive upcoming film slate and upfront commitments to spend advertising dollars. Further, management pointed to operating expenses leveling out towards the end of the year, which should drive a meaningful increase in free cash flow. The company maintained their $0.17/share dividend (9.2% annualized yield). Debt of Diebold Nixdorf (DBD) rose in sympathy with peer NCR Corp (NCR), who posted solid quarterly results and is said to be weighing a sale after receiving takeover interest. Macquarie Infrastructure (MIC) formed a golden cross as its 50-day moving average moved above its 200-day moving average. There was no price-changing news on NGL Energy Partners (NGL) or the debt of Weight Watchers (WW).

Exhibit 2: Significant Contributors to Performance, 5/3/19 – 5/10/19

Name Type Return
National CineMedia Equity 6.7%
Diebold Nixdorf 8.5 4/24 Bond 2.8%
NGL Energy Partners LP Equity 2.5%
Macquarie Infrastructure Co Equity 1.3%
Weight Watchers International 8.625 12/25 Bond 2.2%

Source: Miller Value Partners

Four equities and a bond comprised last week’s top five detractors (Exhibit 3).  BGC Partners (BGCP) fell despite posting solid results, where revenues of $544.8M topped consensus of $535.5M and EPS of $0.18 was in-line and covered the dividend of $0.14/share (11.4% annualized yield). Management guided to Q2 revenues of $515M-$555M, in-line with analyst estimates, but indicated investment spending related to new product launches within its Fenics electronic trading business will drive expenses higher and weigh on earnings (guided to flat year-over-year) in the back half of the year. Management noted on the earnings call that they remain confident in the dividend over the next year. Investment Bank Greenhill (GHL) fell on Dealogic’s report citing April M&A activity declining 26% globally year-over-year, bringing total volumes down 14% YTD. Sberbank (SBER LI) fell despite a positive mention from UBS, citing attractive valuation at 5x 2019e earnings and a 10% dividend yield.

Exhibit 3: Significant Detractors from Performance, 5/3/2019 – 5/10/19

Name Type Return
BGC Partners Equity -12.2%
Greenhill & Co Equity -7.7%
Sberbank Equity -3.8%

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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