May 28, 2019

Income Strategy Update for Week Ended 5/24/19

Just Energy Advances on Canaccord Upgrade on Take-Out Potential While Carlyle Group Falls on Credit Suisse Downgrade

Last week, the Income Strategy declined -1.65%, underperforming both the Merrill Lynch U.S. High Yield Master II Index’s -0.12% fall and the S&P 500’s -1.14% loss. (Exhibit 1). The strategy ended the week up 10.18% YTD, or 206 basis points ahead of the high yield index and 349 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 5/24/191

Time Period Income Strategy ML HY II S&P 500
Last Week (5/17 – 5/24) -1.65% -0.12% -1.14%
MTD -3.36% -0.72% -3.87%
QTD -0.39% 0.67% 0.02%
YTD 10.18% 8.12% 13.67%
Inception (annualized since 4/2/2009) 13.37% 11.14% 15.68%

Source: Bloomberg, Miller Value Partners

Four equities and a bond comprised last week’s top five contributors (Exhibit 2). Canaccord upgraded Just Energy Group (JE CN) from “Hold” to “Speculative Buy” with a C$6.0 price target, 36% implied upside excluding the 11.5% dividend yield, citing take-out potential given the company’s valuable platform and recent trend of acquisitions in the energy retail space. At its annual general meeting, Sberbank (SBER LI) announced they will consider paying quarterly or semi-annual dividends once their capital adequacy ratio reaches 12.5%, as opposed to annually under their current policy. Goldman Sachs downgraded Danske Bank (DANSKE DC) to “Neutral” but still sees 38% upside to their DKR 155 price-target, excluding the 7.5% dividend yield. Debt of Avon Products (AVP) rose on news the company is being acquired by Natura (NATU3) in an all-stock deal at an enterprise value of $3.7B. There was no price-changing news on BGC Partners (BGCP).

Exhibit 2: Significant Contributors to Performance, 5/17/19 – 5/24/19

Name Type Return
Just Energy Group Inc Equity 3.5%
Sberbank Equity 3.3%
BGC Partners Equity 4.6%
Danske Bank Equity 4.3%
Avon Products 7.0% 3/23 Bond 1.4%

Source: Miller Value Partners

Equities comprised last week’s top five detractors (Exhibit 3). Credit Suisse downgraded Carlyle Group (CG) from “Outperform” to “Neutral” with a $22 price target, 8% implied upside, citing strong year-to-date share price appreciation and lack of announcement on C-corp conversion. Seaspan (SSW) fell below its 50-day moving average, while National CineMedia (NCMI) fell below its 50 and 100-day moving averages. There was no price-changing news on New Media Investment Corp (NEWM).

Exhibit 3: Significant Detractors from Performance, 5/17/2019 – 5/24/19

Name Type Return
Seaspan Corp Equity -10.6%
National CineMedia Equity -5.5%
Carlyle Group LP Equity -3.1%
New Media Investment Group Equity -9.6%

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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