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Dec 13, 2022

Opportunity Equity Update for Week Ended 12/9/22

William Keenan

Stitch Fix Gains on Bottom-Line Beat While Green Thumb Declines on Delayed SAFE Banking Legislation

Last week, the Opportunity Equity Strategy's representative account fell -8.44%, underperforming the S&P 500’s -3.35% decline. (Exhibit 1). The strategy ended the week down -33.48% YTD, 1,731 basis points behind the S&P 500.

Exhibit 1: Performance of Opportunity Equity Representative Account Net of Fees, Versus S&P 500, Through 12/9/221
Time Period Opportunity Equity Representative Account S&P 500
Last Week (12/2 - 12/9) -8.44% -3.35%
MTD -8.74% -3.52%
QTD 5.95% 10.12%
YTD -33.48% -16.17%
1 Year -34.40% -14.33%
5 Year 1.72% 10.14%
10 Year 10.79% 12.91%
Inception (annualized since 6/26/00) 5.95% 6.55%

Source: Bloomberg, Miller Value Partners. Visit the Strategy page for Opportunity Equity performance through the most current month end period.

Alibaba Group Holding Limited (BABA) continued to rise in sympathy with the broader Chinese Internet sector on dissipating fears of rising Covid-19 cases in the country. The Chinese central government began implementing 10 new changes to its Covid-19 protocols on Wednesday that included ending citywide lockdowns, requiring pharmacies to remain open and not close at will, and expanding efforts to vaccinate the elderly. This was followed by Premier Li Keqiang saying that China is aiming for steady growth next year amid measures to reopen the economy.

Stitch Fix, Inc. (SFIX) rose above the 50-day moving average after the company reported Q1 FY 2023 earnings that missed on the top-line but beat on the bottom-line. Revenue (-22% Y/Y), of $456M  came in short of consensus at $462M (vs. guidance for $455M-465M), but adj. EBITDA of -$7.4M exceeded consensus expectations of -$12.8M. Active clients were down -11% Y/Y to 3.7M. Management guided for F2Q23 revenue of $410-420M (-20% Y/Y at the midpoint, below consensus of $444M while also lowering its FY23 guidance to $1.6B-$1.7B, down from $1.76B-$1.86B. On profitability, management raised FY23 EBITDA guidance to -$10M to $10M, up from -$45M to -$25M previously. This was partially driven by management increasing its FY23 cost reduction targets to $135M from $40M-$60M previously. Telsey Advisory Group lowered its price target to $5 from $6 (29% upside), while Evercore ISI lowered its price target to $6 from $7 (55% upside).

Alaunos Therapeutics Inc. (TCRT) fell on limited news.

There was limited news on Pangaea One, L.P.

Exhibit 2: Significant2 Contributors to Opportunity Equity Representative Account Performance, 12/2/22 - 12/9/22
Name Type Return
Alibaba Group Holding Limited Equity 1.4%
Stitch Fix, Inc. Equity 2.4%
Cash Equity 0.0%
Pangaea One, L.P. Equity 0.0%
TCRT Restricted Warrant 2019 Derivative -20.0%

Source: Miller Value Partners. See below for additional information.

Ovintiv Inc. (OVV) fell below the 50, 100, and 200-day moving averages following commodity prices lower over the course of the week. Barclays lowered its price target to $60 from $69 (28% upside), while Siebert Williams Shank initiated coverage on the company with a buy rating and $75 price target (61% upside).

Green Thumb Industries Inc. (GTBIF) fell below the 50, 100, and 200-day moving averages after Politico reported that the SAFE Banking Act, legislation that would allow legal cannabis businesses to work within the US financial system, would be left out of the National Defense Authorization Act passed this week in the US Senate.

Expedia Group, Inc. (EXPE) fell below the 50-day and 100-day moving averages as Wolfe Research turned bearish on the travel sector, cutting its rating to underperform from peer perform with an $85 price target (-10% downside). DA Davidson lowered its price target to $108 from $122 (15% upside).

Farfetch Limited (FTCH) continued to decline after its investor day where the company issued long term guidance above consensus expectations but below buy-side expectations. Cowen cut its price target to $8 from $11 (76% upside).

Silvergate Capital Corporation (SI) continued to fall in sympathy with the broader cryptocurrency market. US Senators Elizabeth Warren, John Kennedy, and Roger Marshall wrote a letter addressed to CEO Alan Lane inquiring on the extent of the bank’s business dealings with bankrupt cryptocurrency exchange FTX. Mr. Lane wrote a public letter re-iterating the Bank’s stringent risk management and compliance practices under the Bank Secrecy and USA PATRIOT Acts. Mr. Lane also emphasized that the bank conducted “extensive due diligence” on FTX and Alameda Research, as well as the firm’s resilient balance sheet with ample liquidity “purpose-built” to withstand periods of volatility.

Exhibit 3: Significant2 Detractors from Opportunity Equity Representative Account Performance, 12/2/22 - 12/9/22
Name Type Return
Ovintiv Inc. Equity -15.6%
Green Thumb Industries Inc. Equity -26.7%
Farfetch Limited Equity -24.0%
Expedia Group, Inc. Equity -9.2%
Silvergate Capital Corporation Equity -19.1%

Source: Miller Value Partners. See below for additional information.

Check out the Income Strategy weekly Update. Click to Read.

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

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

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

2Significant Contributors and 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. Returns listed above represent the market performance of the individual security during the week, or for the partial period held in the portfolio during the week.  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. References to specific securities are for illustrative purposes only. Portfolio composition is shown as of a point in time and is subject to change without notice. Content may not be reprinted, republished or used in any manner without written consent from Miller Value Partners. 

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