May 14, 2018

Income Strategy Update for Week Ended 5/11/18

National CineMedia Advances on Earnings Beat While Apollo, Arlington Fall Below Technical Levels

Last week, the Income Strategy advanced 2.20%, outperforming the Merrill Lynch U.S. High Yield Master II Index’s 0.28% gain, but underperforming the S&P 500’s 2.49% rise (Exhibit 1). The strategy ended the week up 6.51% YTD, or 656 basis points ahead of the high yield index and 379 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 5/11/181

Time Period Income Strategy ML HY II S&P 500
Last Week (5/4- 5/11) 2.20% 0.28% 2.49%
MTD 4.12% 0.21% 3.11%
QTD 7.54% 0.87% 3.51%
YTD 6.51% -0.05% 2.72%
Inception (annualized since 4/2/2009-4/30/18) 15.17% 11.81% 16.54%

Source: Bloomberg, Miller Value Partners

Five equities comprised last week’s top five contributors (Exhibit 2). National CineMedia (NCMI) soared after posting strong Q1 EPS of $(0.03) and revenues of $80.2M, both surpassing analyst estimates of $(0.05) and $74.7M, respectively, while maintaining their $0.17/share dividend (9.4% annualized yield). Strong scatter market demand, growth in their National segment, and solid box office numbers fueled better than expected performance. Management reaffirmed 2018 guidance, projecting revenues of $425M-$445M (flat to +4.5%) and adjusted OIBDA of $200M-$215M (-2.5% to +4.8%). Seaspan (SSW) continued its advance and formed a golden cross as the company announced it accepted delivery of two 10,000 TEU containerships, both of which will commence three-year, fixed rate charters with CMA CGM, with an option to extend the maturity for an additional three years. Barclays increased their price target of Hi-Crush Partners (HCLP) 7% to $15, 9% above where it currently trades, as frac sand prices continue to provide a nice tailwind for distributable cash flow gains. CenturyLink (CTL) rose after reporting Q1 EPS of $0.25, beating consensus of $0.19, but slightly missing on revenues of $5.95B versus estimates of $6.0B. Growth in strategic data services and synergy execution helped drive better than expected bottom line results. Management reaffirmed FY 2018 EBITDA of $8.75B-$8.95B and free cash flow of $3.15B-$3.35B.

Exhibit 2: Significant Contributors to Performance, 5/4/18 – 5/11/18

Name Type Return
 National CineMedia Equity 29.6%
 Seaspan Corp Equity 12.6%
Hi-Crush Partners LP Equity 7.2%
 CenturyLink Inc Equity 6.0%

Source: Miller Value Partners

Four equities and a preferred comprised last week’s top five detractors (Exhibit 3). Apollo Global Management (APO) and Arlington Asset Investment Corp (AI) fell below closely watched technical levels. Preferred shares of TravelCenters of America (TA) fell after the company reported a wider than expected EPS loss of $(0.25) versus analyst estimates of $(0.16). Higher than forecasted site level operating costs were primarily responsible for the miss, while revenues were in-line at $1.6B. There was no price-changing news on Blackstone Group (BX) or Triangle Capital Corp (TCAP).

Exhibit 3: Significant Detractors from Performance, 5/4/2018 – 5/11/18

Name Type Return
 Apollo Global Management LLC Equity -2.8%
 Arlington Asset Investment Corp Equity -2.8%
 TravelCenters of America 8.0% Preferred Preferred -2.4%
 Blackstone Group LP Equity -1.1%
 Triangle Capital Corp Equity -0.4%

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 fee 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.

©2018 Miller Value Partners, LLC

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