May 7, 2018

Income Strategy Update for Week Ended 5/4/18

Greenhill & Co Advances on Strong Earnings While BGC Partners Falls on Newmark Timeline Uncertainty

Last week, the Income Strategy advanced 1.76%, outperforming both the Merrill Lynch U.S. High Yield Master II Index’s -0.05% decline and the S&P 500’s -0.21% fall (Exhibit 1). The strategy ended the week up 4.22% YTD, or 454 basis points ahead of the high yield index and 399 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 5/4/181

Time Period Income Strategy ML HY II S&P 500
Last Week (4/27- 5/4) 1.76% -0.05% -0.21%
MTD 1.88% -0.07% 0.61%
QTD 5.23% 0.60% 1.00%
YTD 4.22% -0.32% 0.23%
Inception (annualized since 4/2/2009-3/31/18) 14.92% 11.76% 16.67%

Source: Bloomberg, Miller Value Partners

Five equities comprised last week’s top five contributors (Exhibit 2). Investment bank Greenhill & Co (GHL) soared after posting Q1 revenues of $87.5M and EPS of $0.21, handily surpassing consensus estimates of $62.9M and $(0.03), respectively. A better-than-expected deal-making environment drove the outperformance. Apollo Global Management (APO) advanced despite reporting a wider-than-expected Q1 economic net loss of $(0.30) versus analyst estimates of $(0.15), while declaring a $0.38/share dividend (4.8% annualized yield) from $0.46 of distributable after-tax earnings. Negative private equity marks on Apollo’s public holdings of Athene (ATH) & ADT (ADT), which were down -8% and -38% in Q1, respectively, contributed to the economic loss. There are, however, positive takeaways with solid performance in Credit (+1.3%) and Real Assets (+1.9%), as well as approximately $270M of annualized management fees, or ~$0.66/unit prior to expenses, coming online in the next few months between Fund IX and the Voya transaction. Peer Carlyle Group (CG) posted strong Q1 economic net income of $0.47, easily beating consensus estimates of $0.29 and the dividend of $0.27/share (4.9% annualized yield). Corporate private equity, which gained +4%, along with real assets and credit funds drove the beat. Carlyle is continuing to benefit from robust fundraising activity and expects to generate significantly higher fee-related earnings by year-end. Hi-Crush Partners (HCLP) rose on solid Q1 results where adjusted EBITDA came in at $64.5M, beating consensus of $62.2M. Higher pricing and logistics revenue helped offset lower-than-expected rail volumes during the quarter. Shipping operator Seaspan (SSW) reported Q1 EPS of $0.13, missing estimates of $0.17 and just covering the dividend of $0.125/share (5.9% annualized yield). Higher interest expenses relating to the GCI acquisition detracted from performance. Moving forward, management will focus on more effective capital allocation decisions, mainly in the form of reducing debt to less than 4x EBITDA, and taking a look at potentially reallocating the dividend to buybacks.

Exhibit 2: Significant Contributors to Performance, 4/27/18 – 5/4/18

Name Type Return
Greenhill & Co Equity 19.6%
Apollo Global Management LLC Equity 9.4%
Carlyle Group LP Equity 6.1%
Hi-Crush Partners LP Equity 4.8%
Seaspan Corp Equity 6.6%

Source: Miller Value Partners

Five equities comprised last week’s top five detractors (Exhibit 3). Real estate brokerage firm BGC Partners (BGCP) fell last week, despite posting Q1 EPS of $0.32 which just beat estimates of $0.31, and covered the dividend of $0.18 (5.9% annualized yield). While the company’s financial services segment boasted record results in Q1 on higher market volatility, investors remain wary of uncertainties surrounding the completion of the Newmark spin-off. Arlington Asset Investment Corp (AI) reported Q1 EPS of $0.57, in-line with consensus estimates and slightly above their $0.55/share dividend (19.4% annualized yield), while tangible book value fell -13.1% to $11.65. Triangle Capital (TCAP) declined after reporting Q1 NII of $0.27, falling short of analyst estimates of $0.29. There was no price-changing news on National CineMedia (NCMI) or CenturyLink (CTL).

Exhibit 3: Significant Detractors from Performance, 4/27/2018 – 5/4/18

Name Type Return
BGC Partners Equity -9.4%
National CineMedia Equity -3.6%
CenturyLink Inc Equity -2.2%
Arlington Asset Investment Corp Equity -1.8%
Triangle Capital Corp Equity -1.3%

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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