August 26, 2019

Income Strategy Update for Week Ended 8/23/19

Apollo Global Advances on Citigroup Optimism While Just Energy Falls as Canaccord Lowers Price Target 

Last week, the Income Strategy advanced 0.94%, outperforming both the Merrill Lynch U.S. High Yield Master II Index’s 0.73% gain and the S&P 500’s -1.42% loss. (Exhibit 1). The strategy ended the week up 8.47% YTD, or 210 basis points behind the high yield index and 661 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 8/23/191

Time Period Income Strategy ML HY II S&P 500
Last Week (8/16 – 8/23) 0.94% 0.73% -1.42%
MTD -4.83% -0.14% -4.30%
QTD -2.48% 0.38% -2.92%
YTD 8.47% 10.57% 15.08%
Inception (annualized since 4/2/2009) 12.86% 11.09% 15.71%

Source: Bloomberg, Miller Value Partners

Four equities and a bond comprised last week’s top five contributors (Exhibit 2). Citigroup added Apollo Global Management (APO) to its 30-day positive catalyst watchlist, stating the recent pullback has created an attractive entry point ahead of the company’s September 5th C-corp conversion. The analyst maintained their “Buy” rating and $50 price target, 39% implied upside excluding the 5.6% dividend yield. National CineMedia (NCMI) moved above closely watched technical levels as B Riley maintained their Buy rating and $9.75 price target, 24% implied upside excluding the 8.7% dividend yield. Further, top holder Standard general purchased 240,000 shares at $7.31. Debt of Endo International (ENDP) rose after announcing a settlement to resolve Track 1 cases in Ohio for $10M, well below street expectations. Abercrombie & Fitch (ANF) maintained their $0.20/share quarterly dividend (4.8% annualized yield).

Exhibit 2: Significant Contributors to Performance, 8/16/19 – 8/23/19

Name Type Return
Apollo Global Management LLC Equity 11.7%
National CineMedia Equity 10.8%
Endo International PLC 6.0 7/23 Bond 4.2%
Abercrombie & Fitch Equity 5.1%

Source: Miller Value Partners

Equities and a bond comprised last week’s top five detractors (Exhibit 3). Canaccord cut their price target for Just Energy Group (JE CN) from C$6.00 to C$3.50, 115% above current levels and sees upside to C$4.25 in a potential takeout based on recent comps. NGL Energy Partners (NGL) fell despite RBC maintaining their “Outperform” rating and $18 price target, 46% implied upside excluding the 12.7% dividend yield, stating the recent sale of refined product assets should help reduce earnings volatility and close the company’s valuation gap to peers. In addition, insiders, including CEO Michael Krimbill purchased 62,901 shares at $13.25, totaling $833K. Credit Suisse lowered their price target on Arlington Asset Investment (AI) from $7.25 to $6.00, 15% implied upside excluding the 17.2% dividend yield. The analyst is cautious on Mortgage REITs as mortgage assets have recently underperformed with the decline in interest rates. There was no price-changing news on Quad Graphics (QUAD) or the debt of Diebold-Nixdorf (DBD).

Exhibit 3: Significant Detractors from Performance, 8/16/19 – 8/23/19

Name Type Return
Just Energy Group Inc Equity -32.3%
Quad Graphics Equity -4.2%
NGL Energy Partners LP Equity -4.1%
Arlington Asset Investment Corp Equity -7.1%
Diebold Nixdorf 8.5 4/24 Bond -1.6%

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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