July 1, 2019

Income Strategy Update for Week Ended 6/28/19

NGL Energy Partners Advances on Raymond James Optimism While Debt of Ascena Falls on Moody’s Downgrade

Last week, the Income Strategy declined -0.33%, underperforming both the Merrill Lynch U.S. High Yield Master II Index’s -0.02% fall and the S&P 500’s -0.27% loss. (Exhibit 1). The strategy ended the week up 11.23% YTD, or 111 basis points ahead of the high yield index and 731 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 6/28/191

Time Period Income Strategy ML HY II S&P 500
Last Week (6/21 – 6/28) -0.33% -0.02% -0.27%
MTD 4.04% 2.42% 7.05%
QTD 0.57% 2.53% 4.30%
YTD 11.23% 10.12% 18.54%
Inception (annualized since 4/2/2009) 13.34% 11.23% 15.99%

Source: Bloomberg, Miller Value Partners

Four equities and a bond comprised last week’s top five contributors (Exhibit 2). NGL Energy Partners (NGL) moved above its 50-day moving average as Raymond James maintained their “Outperform” rating and $18 price target, 21% implied upside excluding the 10.5% dividend yield, saying the market is underappreciating the company’s Crude and Water segments. Citi sees strong upside potential for Carlyle Group (CG), citing potential outperformance in 2020 on greater visibility in realization activity and a likely “catch-up” trade. The analyst maintains a “Buy” rating and $31.50 price target, 37% implied upside. Seaspan (SSW) and Two Harbors Investment Corp (TWO) moved above their 50-day moving averages.

Exhibit 2: Significant Contributors to Performance, 6/21/19 – 6/28/19

Name Type Return
NGL Energy Partners LP Equity 3.7%
Carlyle Group LP Equity 1.5%
Seaspan Corp Equity 2.8%
Two Harbors Investment Corp Equity 2.8%

Source: Miller Value Partners

A smattering of asset classes comprised last week’s top five detractors (Exhibit 3). Debt of Ascena Retail Group (ASNA) fell after its long-term corporate family rating was downgraded by Moody’s to B3 from B1. Quad Graphics (QUAD) declined after the US Department of Justice filed an anti-trust suit seeking to block the company’s merger with LSC Communications (LKSD), alleging the transaction would eliminate Quad’s main competitor. Both companies announced they are prepared to fight to keep the deal alive. Alrosa (ALRS RX) fell after announcing weak monthly diamond sales, down 8% year-over-year in May. UBS maintains their cautious view on the diamond market, but believes it’s closer to bottoming out. Citi removed Blackstone (BX) from its Focus List on strong share price appreciation year-to-date, but notes fundraising and business diversification remains best-in-class, and expects the stock to benefit from a favorable shift in investor base post C-corp conversion. The analyst maintains a “Buy” rating and $51.50 price target, 12% implied upside. There was no price-changing news on the debt of Diebold-Nixdorf (DBD).

Exhibit 3: Significant Detractors from Performance, 6/21/19 – 6/28/19

Name Type Return
Ascena Retail Group TL B 1L 08/22 Term Loan -12.2%
Quad Graphics Equity -11.3%
Alrosa PJSC Equity -4.9%
Diebold Nixdorf 8.5% 4/24 Bond -1.7%
Blackstone Group LP 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 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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