August 19, 2019

Income Strategy Update for Week Ended 8/16/19

Securities of CenturyLink Rise on Morgan Stanley Optimism While Just Energy Falls on EBITDA Miss, Dividend Suspension

Last week, the Income Strategy declined -2.76%, underperforming both the Merrill Lynch U.S. High Yield Master II Index’s -0.15% fall and the S&P 500’s -0.94% loss. (Exhibit 1). The strategy ended the week up 7.46% YTD, or 231 basis points behind the high yield index and 927 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 8/16/191

Time Period Income Strategy ML HY II S&P 500
Last Week (8/9 – 8/16) -2.76% -0.15% -0.94%
MTD -5.73% -0.86% -2.92%
QTD -3.39% -0.35% -1.52%
YTD 7.46% 9.77% 16.73%
Inception (annualized since 4/2/2009) 12.79% 11.04% 15.60%

Source: Bloomberg, Miller Value Partners

Three equities and two bonds comprised last week’s top five contributors (Exhibit 2). Securities of CenturyLink (CTL) rose as Morgan Stanley maintained their “Overweight” rating and $16 price target, 39% implied upside excluding the 8.7% dividend yield. The analyst expects improving revenue trends in the back half of the year on strength in International and Global Accounts, as well as Enterprise which should stabilize and benefit from Q4 seasonality. Citi maintained their “Buy” rating and $11 price target on New Media Investment Group (NEWM), 30% implied upside excluding the 9.0% dividend yield. BGC Partners (BGCP) advanced and formed a golden cross.

Exhibit 2: Significant Contributors to Performance, 8/9/19 – 8/16/19

Name Type Return
BGC Partners Equity 2.3%
CenturyLink Equity 4.0%
CenturyLink 7.6% 9/39 Bond 0.9%
New Media Investment Group Equity 5.2%

Source: Miller Value Partners

Equities and a bond comprised last week’s top five detractors (Exhibit 3). Just Energy (JE CN) reported EBITDA of C$24M, missing consensus of $39M on lower-than-expected revenues and announced a suspension to the dividend while the strategic review remains ongoing. Management lowered FY EBITDA guidance to C$180M-C$200M (from C$220M-C$240M) and free cash flow to C$50M-C$70M (from C$90M-C$100M). NGL Energy Partners (NGL) fell despite Stifel raising their price target from $16 to $17, 30% implied upside excluding the 12.0% dividend yield, reflecting higher EBITDA estimates from the sale of a portion of the company’s refined products business. Alternative asset manager Carlyle Group (CG) fell with the broad equity despite KBW naming the stock as a top pick on strong fundraising and fee-related earnings growth. There was no price changing news on the debt of Chaparral Energy (CHAP) or Alrosa (ALRS RX).

Exhibit 3: Significant Detractors from Performance, 8/9/19 – 8/16/19

Name Type Return
Just Energy Group Equity -49.0%
Chaparral Energy 8.75% 7/23 Bond -9.4%
NGL Energy Partners Equity -6.8%
Carlyle Group LP Equity -3.5%
Alrosa Equity -6.1%

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 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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