July 15, 2019

Income Strategy Update for Week Ended 7/12/19

Debt of Diebold Nixdorf Advances on Valens Credit Optimism While Alrosa Falls on Weak June Sales

Last week, the Income Strategy advanced 0.51%, outperforming the Merrill Lynch U.S. High Yield Master II Index’s -0.03% decline but underperforming the S&P 500’s 0.82% rise. (Exhibit 1). The strategy ended the week up 14.13% YTD, or 381 basis points ahead of the high yield index and 741 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 7/12/191

Time Period Income Strategy ML HY II S&P 500
Last Week (7/5 – 7/12) 0.51% -0.03% 0.82%
MTD 2.61% 0.15% 2.53%
QTD 2.61% 0.15% 2.53%
YTD 14.13% 10.32% 21.54%
Inception (annualized since 4/2/2009) 13.58% 11.20% 16.21%

Source: Bloomberg, Miller Value Partners

Four equities and a bond comprised last week’s top five contributors (Exhibit 2). Valens Credit highlighted the debt of Diebold Nixdorf (DBD) as a top idea, stating expectations for profitability improvement indicate the bond markets are overstating fundamental credit risk. Quad Graphics (QUAD) announced an investment in direct-to-consumer marketing startup ‘the dtx company’, founded by former AOL CEO Tim Armstrong. Cedar Fair (FUN) advanced after reporting preliminary mid-summer net revenues of $579M, an increase of 3% year-over-year driven by 3% growth in in-park guest per capita spending and a 3% increase in out-of-park revenues, including resort hotels. Macquarie Infrastructure (MIC) formed a golden cross as the stock’s 50-day moving average moved above both its 100 and 200-day moving averages. JP Morgan came away positive from Abercrombie & Fitch (ANF) management meetings, citing a favorable risk/reward setup as the company conveyed confidence in achieving their 2020 targets of 5.8% operating margins and EPS of $2.25.

Exhibit 2: Significant Contributors to Performance, 7/5/19 – 7/12/19

Name Type Return
Diebold Nixdorf 8.5% 4/24 Bond 2.4%
Quad Graphics Equity 5.2%
Cedar Fair LP Equity 4.4%
Macquarie Infrastructure Co Equity 2.0%
Abercrombie & Fitch Co Equity 5.2%

Source: Miller Value Partners

Equities comprised last week’s top five detractors (Exhibit 3). Alrosa (ALRS RX) reported June sales of $222M, down 17% on a monthly basis and 43% year-over-year, driven by continued weakness in demand and pricing. JMP Group downgraded Blackstone (BX) from “Market Outperform” to “Market Perform” and maintained their $44 price target, 4% implied downside more than offset by the 4.7% trailing twelve month dividend yield. The analyst sees a more balanced risk/reward profile after recent outperformance but remains bullish on the company’s fundamentals. Piper Jaffray downgraded British American Tobacco (BATS LN) from “Overweight” to “Neutral” with a 3,100p price target, 6% implied upside excluding the 6.9% dividend yield, stating that while the company is likely to deliver decent top-line results, their US outlook is challenged by competitive pressure from reduced-risk products. Sberbank (SBER LI) fell with European banks after the Turkish President removed the country’s central bank governor. There was no price-changing news on Washington Prime Group (WPG).

Exhibit 3: Significant Detractors from Performance, 7/5/19 – 7/12/19

Name Type Return
Alrosa PJSC Equity -7.2%
Blackstone Group Inc Equity -2.6%
British American Tobacco Equity -2.3%
Sberbank Equity -1.5%
Washington Prime Group Equity -4.2%

Source: Miller Value Partners


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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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