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Jan 04, 2023

Opportunity Equity Update for Week Ended 12/30/22

William Keenan

Alibaba and Farfetch Gains on China Reopening While Norwegian Continues Decline on Disappointing Carnival Earnings and Negative Court Ruling

Last week, the Opportunity Equity Strategy's representative account gained 0.70%, outperforming the S&P 500’s -0.11% decline. (Exhibit 1). The strategy ended the week down -35.92% YTD, 1,781 basis points behind the S&P 500.

Exhibit 1: Performance of Opportunity Equity Representative Account Net of Fees, Versus S&P 500, Through 12/30/221

Time Period Opportunity Equity Representative Account S&P 500
Last Week (12/23 - 12/30) 0.70% -0.11%
MTD -12.09% -5.76%
QTD 2.06% 7.56%
YTD -35.92% -18.11%
1 Year -36.36% -18.32%
5 Year 0.96% 9.42%
10 Year 9.85% 12.75%
Inception (annualized since 6/26/00) 5.75% 6.42%

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

Bloomberg Intelligence mentioned Farfetch (FTCH) in a piece highlighting a rebound in luxury good demand in tandem with China’s earlier-than-expected reopening from Covid-19-related lockdowns. Bloomberg suggests that the Chinese consumer’s 35% share of the global luxury market in 2019 could be quickly restored as conditions normalize.

Alibaba Group Holding Limited (BABA) climbed as China’s National Health Commission outlined plans to further downgrade restrictions to control the spread of Covid-19, including dropping quarantine requirements for international arrivals into the country. The company named Wu Zeming as its CTO, succeeding Li Cheng. CEO Daniel Zheng will assume the role of acting President of Alibaba Cloud Intelligence, while former President Jeff Zhang will focus on his role as head of DAMO Academy. Jane Jiang will succeed Judy Tong as Chief People Officer effective April 1st. Alibaba also extended its agreement on a share purchase option with controlling shareholders of STO express through December 27th, 2025. Under the revised agreement, Alibaba has an option to purchase an additional 4.9% of the company in addition to its existing option for 16.1%, or 21% in total.

Mattel, Inc. (MAT) and S4 Capital PLC (SFOR.LN) rose above the 50-day moving averages.

Silvergate Capital Corporation (SI) rose on limited news.

Exhibit 2: Significant2 Contributors to Opportunity Equity Representative Account Performance, 12/23/22 - 12/30/22

Name Type Return
Farfetch Ltd. Equity 19.4%
Mattel, Inc. Equity 5.4%
Silvergate Capital Corporation Equity 5.8%
S4 Capital PLC Equity 4.8%
Alibaba Group Holding Limited Equity 2.8%

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

Norwegian Cruise Line Holdings Ltd. (NCLH) continued to fall in the wake of Carnival’s 4Q FY 2022 earnings that fell short of expectations. Reuters reported that Justice Beth Bloom of the United States District Court for the Southern District of Florida ordered Norwegian to pay $110M to Delaware-registered Havana Docks Corp., ruling that the use of the Havana Cruise Port terminal constituted trafficking in property owned by the plaintiff and illegally confiscated by the Communist Party of Cuba following the 1959 Cuban Revolution.

Ovintiv Inc. (OVV) fell below the 100-day moving average. Bloomberg Intelligence highlighted that the company will likely generate higher FCF in 2023 at roughly $2.3B (~$9 per share, 18% yield), with “manageable” debt at 0.6x net debt-to-EBITDA.

Taylor Morrison Home Corporation (TMHC) fell as new home sales rose 5.8% sequentially to 640k, more than the -5.1% decline expected, but still down -15.3% YoY. New home inventory fell -1.7% sequentially and rose 18.2% YoY, while median prices fell -2.8% sequentially but were up 9.5% YoY. Later in the week, pending home sales declined by -4.0% on a sequential basis to 73.9, below the -1% decline expected, and down -37.8% YoY.

Cleveland-Cliffs Inc. (CLF) fell on limited news despite steel prices rising higher over the course of the week.

Exhibit 3: Significant2 Detractors from Opportunity Equity Representative Account Performance, 12/23/22 - 12/30/22

Name Type Return
Norwegian Cruise Line Holdings Ltd. Equity -5.8%
Ovintiv Inc. Equity -2.4%
Cleveland-Cliffs Inc. Equity -4.7%
*New Security* Equity -3.1%
Taylor Morrison Home Corporation Equity -1.2%

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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