June 10, 2019

Income Strategy Update for Week Ended 6/7/19

Just Energy Advances on Takeout Speculation, While Ashford Falls on Deal to Acquire Hotel Management Business from Remington

Last week, the Income Strategy gained 3.19%, outperforming the Merrill Lynch U.S. High Yield Master II Index’s 0.97% gain and underperforming the S&P 500’s 4.46% gain. (Exhibit 1). The strategy ended the week up 10.32% YTD, or 175 basis points ahead of the high yield index and 536 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 6/7/191

Time Period Income Strategy ML HY II S&P 500
Last Week (5/31 -6/7) 3.19% 0.97% 4.46%
MTD 3.19% 0.97% 4.46%
QTD -0.26% 1.08% 1.79%
YTD 10.32% 8.57% 15.68%
Inception (annualized since 4/2/2009) 13.33% 11.14% 15.81%

Source: Bloomberg, Miller Value Partners

Five equities comprised last week’s top five contributors (Exhibit 2).  Just Energy Group Inc. (JE CN) crossed above its 50, 100, and 200-day moving averages after announcing that its Board of Directors has decided to undertake a formal review process to evaluate strategic alternatives. This follows expressions of interest from a number of parties concerning potential transaction. Alternative asset managers were up for the week with Apollo Global Management LLC (APO) crossing above the 50-day moving average as Athora announced its intention to acquire VIVAT from Anbang Group, which should meaningfully increase APO’s AUM, adding ~$0.08 of fee related earnings once scaled. JMP also raised their price target on Apollo to $40 from $36, upside of 22% excluding the ~6% dividend yield, citing the C-corp conversion. Carlyle Group (CG) crossed the 50 day-moving average while Blackstone (BX) gained over the week after announcing an $18.7B purchase of warehouse assets from Singapore’s GLP making a bet on the future of online shopping. Sberbank (SBER LI) reported May results with record monthly profits of RUB75.7b at 3.3% ROA and 21.6% ROE which is a 14% increase from a year ago. While corporate loans edged down by 0.7% MoM, retail loans grew 1.3% MoM.

Exhibit 2: Significant Contributors to Performance, 5/31/19 – 6/7/19

Name Type Return
Just Energy Group Inc Equity 24.1%
Apollo Global Management LLC Equity 11.0%
Carlyle Group LP Equity 9.3%
Blackstone Group LP Equity 10.9%
Sberbank Equity 8.7%

Source: Miller Value Partners

Equities comprised last week’s top five detractors (Exhibit 3). Ashford Hospitality Trust (AHT) fell on news they have agreed to acquire Remington Holdings LP’s hotel management business for $275M in new Series D convertible preferred shares in order to add scale to its hotel-related business. Ashford expects the deal to increase its total enterprise value to $600M and be immediately accretive to adjusted net income per share. NGL Energy Partners LP (NGL) declined as board member John T Raymond sold 176.6k of shares, totaling over $2.6M. There was no price changing news on Seaspan Corp (SSW).

Exhibit 3: Significant Detractors from Performance, 5/31/19 – 6/7/19

Name Type Return
Seaspan Corp Equity -2.1%
Ashford Hospitality Trust Inc Equity -4.5%
NGL Energy Partners LP Equity -0.7%

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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