Income Strategy Weekly Update for 02/16/2024 – 02/23/2024

CTO Realty Gains on Strong Earnings Report, While Quad Graphics Falls Despite Earnings Beat

Last week, the Income Strategy’s representative account fell -0.42% (net of fees), underperforming the ICE BofA Merrill Lynch High Yield Master II Index’s 0.47% gain and underperforming the S&P 500’s 1.68% gain. (Exhibit 1). The strategy ended the week up 0.28% YTD, or in-line with the high yield index and 663 basis points behind the S&P 500.

Exhibit 1: Performance of Income Strategy Representative Account Net of Fees Versus High Yield, Equity Indices, Through 2/23/2024¹

Time Period	Income Strategy Representative Account	ICE BofA Master High Yield II Index	S&P 500 Index
Last Week (2/16 – 2/23)	-0.42%	0.47%	1.68%
MTD	2.44%	0.25%	5.15%
QTD	0.28%	0.28%	6.91%
YTD	0.28%	-0.28%	6.91%
1 Year	9.10%	11.29%	28.88%
5 Year	4.24%	4.10%	14.67%
Inception (annualized since 2/28/2014)	3.76%	4.28%	12.70%

Source: Bloomberg, Miller Value Partners.

Five equities comprised last week’s top 5 contributors. CTO Realty (CTO) reported 4Q23 revenue of $29.9MM, +32.6% year-over-year (Y/Y), ahead of consensus of $26.4MM, and Core FFO/share of $0.48, +41.2% Y/Y, ahead of consensus of $0.33. Same-property net-operating income (NOI) increased 4.7% Y/Y in the quarter, while the company was able to sign 16 comparable leases in the quarter for 74.2K square feet that resulted in comparable rent per square foot growth of 17.9%. For FY24, management is guiding for Core FFO/share of $1.60, or a P/FFO multiple of ~10.8x, which incorporates the expectation for same-property NOI growth of 3% Y/Y. There was no price-changing news for Stellantis NV (STLA), Viatris (VTRS), or Buckle (BKE) last week.

Exhibit 2: Significant Contributors to Income Strategy Representative Account Performance, 02/16/24 – 02/23/24

Name	Type
Stellantis NV	Equity
CTO Realty Growth Inc.	Equity
Viatris Inc.	Equity
The Buckle Inc.	Equity
*RECENTLY ADDED SECURITY*	Equity

Source: Miller Value Partners.

Five equities comprised last week’s top 5 detractors. Quad Graphics (QUAD) reported 4Q23 net sales of $787.9MM, -11.0% Y/Y, ahead of consensus of $758.0MM, and Adjusted earnings per share (EPS) of $0.23, compared to 4Q22 EPS of $0.41, ahead of consensus of $0.13. The company generated FY23 free cash flow (FCF) of $76.8MM, or a FCF yield of 27.5%, and management repurchased $12.6MM worth of shares during the year (4.5% of market cap) and also reinstated its quarterly dividend of $0.05/share (3.8% yield). For FY24, management is guiding for net sales to fall -7% Y/Y, Adjusted earnings before income, taxes, depreciation, and amortization (EBITDA) of $225MM (Enterprise Value (EV)/EBITDA of ~3.8x), capital expenditure (Capex) of $65MM, and FCF of $60MM (21.5% FCF yield), at the respective midpoints. Boise Cascade (BCC) reported 4Q23 sales of $1.64B, +1.0% Y/Y, in-line with consensus, and EPS of $2.44, -17.3% Y/Y, below consensus of $2.51. Adjusted EBITDA for the quarter came in at $160.6MM, or a margin of 9.8%, -179bps Y/Y, while FCF was $50.1MM in the quarter, bringing FY23 FCF to $472.0MM, or a FCF/EV yield of 10.0%. During FY23, the company paid $8.70/share in dividends and repurchased $6MM worth of shares, resulting in total shareholder returns of $352.5MM, or a 6.9% shareholders’ yield. There was no price-changing news for Western Alliance Bancorp (WAL), GEO Group (GEO), or Public Policy Holding Company (PPHC LN) last week.

Name	Type
Quad Graphics	Equity
Boise Cascade Co	Equity
Western Alliance Bancorp	Equity
GEO Group Inc.	Equity
Public Policy Holding Company Inc.	Equity

Source: Miller Value Partners.

As of prior week’s market close unless otherwise stated.

¹The performance figures for the representative Income Strategy account reflect the deduction of investment management fees and certain other expenses. Returns greater than 1 year are annualized.

For additional information about Income Strategy performance, please click on the Income Strategy Composite Performance Disclosure. Past performance is no guarantee of future results.

Significant Contributors and Significant Detractors are based on holdings that had the greatest effect on representative account performance for the week. Holdings that have been in the portfolio 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. There is no guarantee that market trends discussed herein will continue. 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. Portfolio composition is shown as of a point in time and is subject to change without notice.