June 17, 2019

Income Strategy Update for Week Ended 6/14/19

Alternative Asset Managers Rise on Street Optimism While Ascena Falls on Missed Sales

Last week, the Income Strategy was flat, underperforming both the Merrill Lynch U.S. High Yield Master II Index’s 0.36% gain and the S&P 500’s 0.53% rise. (Exhibit 1). The strategy ended the week up 10.32% YTD, or 136 basis points ahead of the high yield index and 597 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 6/14/191

Time Period Income Strategy ML HY II S&P 500
Last Week (6/7 -6/14) 0.00% 0.36% 0.53%
MTD 3.19% 1.34% 5.01%
QTD -0.26% 1.45% 2.32%
YTD 10.32% 8.96% 16.29%
Inception (annualized since 4/2/2009) 13.31% 11.16% 15.83%

Source: Bloomberg, Miller Value Partners

Four equities and a bond comprised last week’s top five contributors (Exhibit 2).  Alternative asset managers Blackstone Group (BX), Apollo Global Management (APO), and Carlyle Group (CG) rose last week with the broad equity market and on continued optimism from the street. Morgan Stanley came away from their Financials conference incrementally bullish on the group, citing expectations for a robust capital raising environment to boost sticky management fees and a step-up in the investor base post C-corp conversions. Goldman Sachs also reiterated their bullish stance on alternatives as they expect the current market creates a “Goldilocks” environment, driving further asset allocation to the group and providing a boost to fee-related earnings. The analyst is “Buy” rated on Apollo and Carlyle as attractive dividend yield plays. Goldman Sachs came away optimistic post management meetings with CenturyLink (CTL), who reiterated their outlook for revenue in the company’s Enterprise segment and expects 2Q19 Enterprise sales to be higher sequentially. Management remains confident the company will achieve $800M to $1B of cost savings over the next three years. There was no price-changing news on Just Energy Group (JE CN).

Exhibit 2: Significant Contributors to Performance, 6/7/19 – 6/14/19

Name Type Return
Blackstone Group LP Equity 5.2%
Just Energy Group Inc Equity 3.2%
Apollo Global Management LLC Equity 2.2%
CenturyLink Inc 7.6 9/39 Bond 2.3%
Carlyle Group LP Equity 1.1%

Source: Miller Value Partners

Four equities and a term loan comprised last week’s top five detractors (Exhibit 3). Debt of Ascena Retail (ASNA)  fell after the company reported fiscal Q3 revenues of $1.3B, missing consensus of $1.4B, while earnings of $(0.26) topped estimates of $(0.37), driven by flat same-store sales comps versus guidance of -4% to -2%. Management did not provide fiscal Q4 guidance, but expects same-store sales of -5% to -3%. British American Tobacco (BATS LN) provided a mid-year trading update, where management reiterated FY19 EPS guidance in the high single-digits and expects 4%-5% constant currency revenue growth. Management, however, lowered their guidance for industry volumes to -4% to -5% (from -3.5% to -4.5%). Ashford Hospitality Trust (AHT) fell after cutting their dividend in half to $0.06/share (7.0% annualized yield), citing the prior level was not appreciated by the market and has opted to redeploy the savings to other potential initiatives. Greenhill (GHL) fell after UBS cut estimates for Boutique Investment Banks as announced M&A volumes have lost momentum and expects revenue pipelines to remain weak. There was no price-changing news on Sberbank (SBER LI).

Exhibit 3: Significant Detractors from Performance, 6/7/19 – 6/14/19

Name Type Return
Ascena Retail Group TL B 1L 08/22 Term Loan -8.5%
British American Tobacco PLC Equity -5.4%
Ashford Hospitality Trust Inc Equity -14.6%
Sberbank Equity -3.2%
Greenhill & Co Inc Equity -10.9%

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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