July 30, 2018

Income Strategy Update for Week Ended 7/27/18

Hi-Crush Soars on Dividend Hike & FB Industries Acquisition While Tupperware Brands Falls on Lowered FY18 Guidance

Last week, the Income Strategy advanced 0.76% outperforming the Merrill Lynch U.S. High Yield Master II Index’s 0.34% gain and the S&P 500’s 0.61% rise (Exhibit 1). The strategy ended the week up 13.39% YTD, or 1,236 basis points ahead of the high yield index and 684 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 7/27/181

Time Period Income Strategy ML HY II S&P 500
Last Week (7/20-7/27) 0.76% 0.34% 0.61%
MTD 2.33% 0.96% 3.80%
QTD 2.33% 0.96% 3.80%
YTD 13.39% 1.03% 6.55%
Inception (annualized since 4/2/2009-6/30/18) 15.88% 11.62% 16.60%

Source: Bloomberg, Miller Value Partners

Four equities and a bond comprised last week’s top five contributors (Exhibit 2). Hi-Crush Partners (HCLP) soared after increasing its distribution 233% to $0.75/share (19.1% annualized yield) and announcing the $60M acquisition of FB Industries, a leading manufacturer of silo-based frac sand management systems. The deal is being funded with $40M cash and $15M worth of new stock, and makes Hi-Crush the sole provider of both silo and container solutions in the frac sand logistics industry. Lastly, the company released preliminary Q2 results that exceeded expectations with revenues of $247-$249.5M (vs consensus of $245M) and EBITDA of $80M-$82.5M (vs consensus of $80M), while FY18 capex was increased to $180-$210M (from $35M-$45M). Investment bank Greenhill & Co (GHL) rose on the release of an internal report revealing record deal volume of $27B for the secondary market in the first half of 2018, driven mainly by the continued strength in large deals. There was no price-changing news on Maiden Holdings (MHLD), Sberbank (SBER LI), or Frontier Communications (FTR).

Exhibit 2: Significant Contributors to Performance, 7/20/18 – 7/27/18

Name Type Return
Hi-Crush Partners LP Equity 40.6%
Maiden Holdings Ltd Equity 3.6%
Greenhill & Co Equity 2.9%
Sberbank Equity 4.1%
Frontier Communications 10.5% 9/22 Bond 1.6%

Source: Miller Value Partners

Five equities comprised last week’s top five detractors (Exhibit 3). Tupperware Brands (TUP) reported Q2 EPS of $1.17, ahead of consensus estimates of $1.10 and covering the dividend of $0.68/share (7.4% annualized yield), while falling short on revenues of $535.4M vs $553.5M. Management lowered FY18 guidance where they see EPS of $4.25-$4.35 (previously $4.52-$4.67), net sales growth of -7% to -6% (previously -1% to +1%), and FCF of $165M-$175M (previously $180M-$190M). New Residential Investment Corp (NRZ) traded down despite posting a solid print with core EPS of $0.58 vs consensus of $0.55 and covering the dividend of $0.50/share (11.29% annualized yield). The beat was driven by higher than expected NII and lower opex, while book value fell 0.2% to $16.80 (from $16.85). Management remains prudent in the current investing landscape as capital in the markets remains elevated and spreads have tightened, but is well positioned for a rising rate environment. New Media Investment Group (NEWM) fell below its 50-day moving average. Stockholders of CYS Investments (CYS) approved the merger transaction with Two Harbors (TWO), which is expected to close on July 31st. There was no price-changing news on Seaspan (SSW).

Exhibit 3: Significant Detractors from Performance, 7/20/2018 – 7/27/18

Name Type Return
Tupperware Brands Corp Equity -12.1%
Seaspan Corp Equity -7.1%
New Residential Investment Corp Equity -3.7%
New Media Investment Group Equity -3.3%
CYS Investments Equity -2.1%

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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