September 3, 2019

Income Strategy Update for Week Ended 8/30/19

NGL Energy Advances on $150m Buyback While Abercrombie Falls on Lower Topline Guidance 

Last week, the Income Strategy advanced 1.47%, outperforming the Merrill Lynch U.S. High Yield Master II Index’s 0.52% gain but underperforming the S&P 500’s 2.83% gain. (Exhibit 1). The strategy ended the week up 10.07% YTD, or 108 basis points behind the high yield index and 827 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 8/30/191

Time Period Income Strategy ML HY II S&P 500
Last Week (8/23 – 8/30) 1.47% 0.52% 2.83%
MTD -3.44% 0.39% -1.58%
QTD -1.04% 0.90% -0.17%
YTD 10.07% 11.15% 18.34%
Inception (annualized since 4/2/2009) 13.00% 11.13% 15.69%

Source: Bloomberg, Miller Value Partners

Five equities comprised last week’s top five contributors (Exhibit 2). National CineMedia (NCMI) was up last week after top holder Standard General LP purchased over 380,000 shares for ~$3.1M.  NGL Energy Partners (NGL) crossed above the 200-day moving average after announcing a $150M share buyback (9% of outstanding market cap).  Carlyle Group (CG) gained on the week after JPM analysts raised their price target from $31 to $32, upside of 40%, believing that the new co-CEOs, Glenn Youngkin and Kewsong Lee, are focusing more on shareholders’ interests. William Hill (WMH LN) increased as Morgan Stanley published a positive note on the company citing little risk to the company hitting 2019 estimates while noting that the US strategy is underappreciated. There was no price changing news on Apollo Global Management (APO).

Exhibit 2: Significant Contributors to Performance, 8/23/19 – 8/30/19

Name Type Return
National CineMedia Equity 10.7%
Apollo Global Management Equity 5.5%
NGL Energy Partners LP Equity 9.7%
Carlyle Group Equity 3.5%
William Hill plc Equity 7.9%

Source: Miller Value Partners

Four equities and a bond comprised last week’s top detractors (Exhibit 3).  Abercrombie & Fitch Co. (ANF) reported 2Q results which beat on earnings but slightly missed on revenues while guiding for a softer sales outlook for 2H19. The company reported 2Q EPS of -$0.48 ahead of consensus of -$0.53. Management lowered full year sales guidance to flat to +2% from +2-+4% previously and lowered gross margin guidance to a decline of 50-90bps versus up slightly previously. Tariffs are expected to have a negative 60bps impact. ANF was upgraded to hold at Deutsche Bank as they believe that falling margins are now reflected in guidance and valuation. British American Tobacco (BATS LN) fell below the 50 and 100-day moving average after it was reported that rival cigarette makers Philip Morris and Altria are exploring an all-share merger of equals, more than ten years after they split. If Philip Morris and Altria go through with the all-stock deal, they would become the largest publically traded cigarette maker. Two Harbors Investment Corp. (TWO) crossed below the 50, 100 and 200-day moving averages. There was little price changing news for Chaparral Energy (CHAP) or Arlington Asset Investment Corp (AI).

Exhibit 3: Significant Detractors from Performance, 8/23/19 – 8/30/19

Name Type Return
Abercrombie & Fitch Co. Equity -6.6%
Chaparral Energy 8.75 7/23 Bond -10.8%
British American Tobacco PLC Equity -3.6%
Two Harbors Investment Corp Equity -3.6%
Arlington Asset Investment Corp Equity -5.0%

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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