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Feb 22, 2022

Opportunity Equity Update for Week Ended 2/18/22

Christina Siegel Malbon

Mattel Gains on Investor Day While Vontier Falls on EMV Revenue Headwinds

Last week, the Opportunity Equity strategy fell -3.00%, underperforming the S&P 500’s -1.52% loss. (Exhibit 1). The strategy ended the week down -7.63% YTD, 94 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 2/18/221

Time Period Opportunity Equity S&P 500
Last Week (2/11 - 2/18) -3.00% -1.52%
MTD -1.72% -3.58%
QTD -7.63% -8.57%
YTD -7.63% -8.57%
Inception (annualized since 6/26/00) 7.80% 7.23%

Source: Bloomberg, Miller Value Partners

Mattel Inc (MAT) held an investor day where management reiterated its 2022 and 2023 financial guidance and provided further insight on its strategy to accelerate top-line growth, increase profitability, and capture the full value of its IP. The company expects 2022 topline growth of 8%-10% followed by high-single-digit growth in 2023 compared to overall expected toy industry growth of 5.4%. Topline growth along with continued cost optimizations should help the company achieve their goal of reaching 16-17% operating margins in 2023. Canada Goose Holdings (GOOS) announced it had received regulatory relief to allow the purchase of up to 10% of its public float of subordinate voting shares on the New York Stock Exchange and other US-based trading systems, as opposed to being limited to 5% of outstanding shares. TLT P143 1/24, put options on the iShares 20+ Treasury Bond ETF ended the week higher despite long-dated rates ending the week largely flat. The Federal Reserve’s January FOMC minutes outlined plans for interest rate increases and a reduction in balance sheet holdings over the next year and beginning as soon as March. Delta Airlines Inc (DAL) rose after Jefferies released a positive note on the company citing its young fleet, superior labor relations, and reduced tax liabilities – reiterating their $50 price target (19% upside). There was limited news on Green Thumb Industries Inc. (GTBIF).

Exhibit 2: Significant Contributors to Performance, 2/11/22 - 2/18/22

Name Type Return
Mattel Inc Equity 2.9%
Green Thumb Industries Inc. Equity 3.2%
Canada Goose Holdings Equity 5.4%
TLT P143 1/24 Derivative 3.9%
Delta Airlines Inc Equity 1.2%

Source: Miller Value Partners

Vontier Corp (VNT) fell after reporting 4Q earnings and providing 2022 guidance. Core revenue fell -8.2% vs guidance of mid-single-digits with the bulk of the disappointment coming from mobility technologies which declined -11% driven by a roughly $100M EMV (Europay, Mastercard, and Visa) headwind as well as supply chain disruptions. EMV payment cards, also called chip cards, were introduced in 2010 to help reduce fraud. Current Federal regulation requires gas station payment terminals accommodate EMV cards, placing liability for risk of fraud on gas stations which failed to comply by April 2021, effectively pulling forward demand. Despite this headwind, Vontier posted strong fourth-quarter results, as its adjusted EPS of $0.83 exceeded consensus estimates of $0.80. The company guided for 2022 adjusted EPS of $3.05 to $3.15 ahead of consensus expectations of $3.04. The guide incorporates cores sales growth of low-single-digits to mid-single-digits leading to high-single-digits overall growth. The company is expecting a more favorable view of EMV headwinds coming in at $25-50M (previously $75-100M) in 2022 but a worse than expected impact of $300-350M in 2023. The company noted they will opportunistically buyback stock in “early 2022” and reaffirmed the ~$2B of M&A capacity over the next 2-3 years. PureTech Health’s (PRTC LN) founded entity Akili Interactive, announced that Social Capital Suvretta Holdings Corp. I has filed with the SEC a registration statement on Form S-4 which contains preliminary proxy statement in connection to the previously announced proposed business combination with Akili. The combination is expected to close mid-2022. Tupperware Brands Corp (TUP) fell through the 100-day moving average. Farfetch Ltd (FTCH), and Ovintiv Inc (OVV) fell on limited news.

Exhibit 3: Significant Detractors from Performance, 2/11/22 - 2/18/22

Name Type Return
Farfetch Ltd Equity -16.2%
PureTech Health PLC Equity -16.8%
Vontier Corp Equity -11.0%
Tupperware Brands Corp Equity -9.3%
Ovintiv Inc Equity -4.9%

-Source: Miller Value Partners

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1The performance figures reflect the results of a representative account net of management fee and certain other expenses. For important additional information about Opportunity Equity performance, please click on the Opportunity Equity 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. Portfolio composition is shown as of a point in time and is subject to change without notice.

©2022 Miller Value Partners, LLC