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Feb 28, 2023

Opportunity Equity Update for Week Ended 2/24/23

William Keenan

Farfetch Rises on Earnings While Coinbase Falls on Earnings Miss

Last week, the Opportunity Equity Strategy's representative account fell -3.69%, underperforming the S&P 500’s -2.66% decline. (Exhibit 1). The strategy ended the week up 15.03% YTD, 1,137 basis points ahead of the S&P 500.

Exhibit 1: Performance of Opportunity Equity Representative Account Net of Fees, Versus S&P 500, Through 2/24/231

Time Period Opportunity Equity Representative Account S&P 500
Last Week (2/17 - 2/24) -3.69% -2.66%
MTD -4.86% -2.46%
QTD 15.03% 3.66%
YTD 15.03% 3.66%
1 Year -17.03% -5.86%
5 Year 3.43% 9.56%
10 Year 9.96% 12.25%
Inception (annualized since 6/26/00) 6.37% 6.55%

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

Ovintiv Inc. (OVV) and Chesapeake Energy Corporation (CHK) followed commodity prices higher over the course of the week. Chesapeake also reported 4Q 2022 earnings. Total production of 3,640 CF/Day came in-line with consensus of 3,684 CF/Day. EBITDAX beat consensus coming in at $1,032M vs $1,025M expected while EPS of $3.76 beat consensus of $2.86. Capital spending of $526M was above the high end of guidance ($445-475M) and higher than expected at $476M. Cash flow per share of $7.82 beat consensus of $5.98. The company bought back $406M in stock during the quarter (2.8% of shares outstanding) and paid a total quarterly dividend of $1.29 (6.0% annual yield). The company guided for FY23 total production of 3,400-3,500 CF/Day while maintaining total cost guidance of $0.25-0.35/mcf. CAPEX was guided for $1.8B, well below consensus at $2.2B. FY23 shareholder returns are expected to total at least $1.53B, consisting of $930M in buybacks (7.2% of shares outstanding) and $600M in dividends. Lastly, Chesapeake announced it had reached an agreement to sell a portion of its Eagle Ford US Shale asset to INEOS Energy for $1.4B, securing an aggregate $2.8B in total for the acreage.

Farfetch Limited (FTCH) rose above the 50-day moving average after reporting Q4 2022 results that exceeded expectations. The company reported Total GMV of $1.14B vs $1.13B expected (down -12% y/y, though down -5% y/y on a constant currency basis). Revenue of $629M came in ahead of consensus at $624M (down -6% y/y and up 2% y/y on a constant currency basis). Take rate remained robust at 32.4%, up 200 bps y/y, and total customers grew 6% y/y to 3.9M despite losing 100k customers in Russia. On profitability, EBITDA missed at -$35M vs -$17M expected, but the implied margin of -4.9% was within the guided range of -3% to -5%. The company reiterated its guidance from its capital markets day, expecting full year platform GMV to increase 21% y/y, brand GMV to be up 32% y/y, and full year EBITDA margins between 1% and 3%. Farfetch ended the year with in $734M in cash outstanding vs consensus at $698M, and they expect a return to being FCF positive on a full year basis. Lastly, CFO Elliott Jordan announced his departure from the firm, though he will remain in place as CFO through the end of FY 2023 in order to find a suitable replacement and ensure a smooth transition. Jefferies lowered its price target to $12 from $14 (111% upside), while Wedbush lowered its price target to $5 from $6 (-12% downside).

United Airlines Holdings, Inc. (UAL) launched the United Airlines Ventures sustainable flight fund, a vehicle designed to support start-ups focused on decarbonizing air travel by accelerating the research, production and technologies associated with sustainable aviation fuel (SAF). The fund raised more than $100M including investments from United and its inaugural partners Air Canada, Boeing, GE Aerospace, JPMorgan Chase, and Honeywell.

Karuna Therapeutics, Inc. (KRTX) rose after reporting 4Q 2022 earnings. Management re-iterated that programs for KarXT remain on track, highlighted by the highly anticipated EMERGENT-3 data expected in March, and the NDA submission for KarXT in schizophrenia for mid-2023. Management reiterated guidance for topline data in the phase-3 KarXT trials for adjunctive treatment in schizophrenia (ARISE) and Alzheimer's disease psychosis (ADEPT-1/2) in 1H24 and 2025, respectively. Karuna also announced plans to initiate an open-label ambulatory blood pressure monitoring (ABPM) phase-1 study for KarXT in 2Q. The company currently has $1.1B in cash and cash equivalents on hand, which it expects to be sufficient to fund operating expenses and capital expenditure requirements through 2025.

Exhibit 2: Significant2 Contributors to Opportunity Equity Representative Account Performance, 2/17/23 - 2/24/23

Name Type Net Return
Ovintiv Inc. Equity 4.6%
Chesapeake Energy Corporation Equity 6.6%
Farfetch Limited Equity 6.8%
United Airlines Holdings, Inc. Equity 1.2%
Karuna Therapeutics, Inc. Equity 0.2%

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

Alibaba Group Holding Limited (BABA) fell through the 100 and 200-day moving averages, pulling back with the broader Chinese internet sector on geopolitical concerns despite reporting strong quarterly FY3Q results that beat consensus on the topline and profitability. Total revenue of ¥247.8B (+2% y/y) was ahead of consensus expectations of ¥245.9B, with adjusted EBITDA of ¥59.2B ahead of consensus of ¥53.6B leading to EPS of ¥19.26 topping expectations of ¥16.57. Cloud revenue grew +3.3% y/y to ¥20.2B versus consensus of +1.9% y/y. During the quarter, Alibaba repurchased 45.4M ADSs for $3.3B, or $72.69 per ADS (1.7% of shares outstanding). As of December 31, the company had $21.3B remaining on its share repurchase authorization through March 2025, enough to repurchase 240M ADS at current prices (~9.2% of shares outstanding). Truist raised its price target to $130 from $120 (46% upside).

General Motors Company (GM) fell as Automotive News reported that the company would idle its Fort Wayne, Indiana assembly plant for two weeks in order to manage inventory levels in its GMC Sierra and Chevrolet Silverado full-size pickup truck models.

Coinbase Global, Inc. (COIN) fell through the 200-day moving average after reporting Q4 2022 results. The company reported revenue of $629M above consensus of $581M with adjusted EBITDA coming in above consensus at -$124M vs -$202M expected and adjusted EPS of -$2.46 missing consensus of -$2.17. Despite the softer start to the year, Coinbase remains committed to investing for the long-term while managing costs to survive a digital asset downturn, announcing it will now manage its P&L to be profitable in adjusted EBITDA on a through-cycle basis. Canaccord Genuity lowered its price target to $100 from $120 (62% upside), while Oppenheimer raised its price target to $84 from $72 (36% upside).

Norwegian Cruise Line Holdings Ltd. (NCLH) fell on limited news.

Canada Goose Holdings Inc. (GOOS) fell through the 50, 100, and 200-day moving averages on limited news.

Exhibit 3: Significant2 Detractors from Opportunity Equity Representative Account Performance, 2/17/23 - 2/24/23

Name Type Net Return
Alibaba Group Holding Limited Equity -11.0%
General Motors Company Equity -9.2%
Coinbase Global, Inc. Equity -10.4%
Norwegian Cruise Line Holding Ltd. Equity -7.0%
Canada Goose Holdings Inc. Equity -9.0%

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

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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. The net return shown above for each individual security represents the change in market price of the security during the week, according to a third-party pricing service, or for the partial period held in the portfolio during the week.  Net returns also include any purchases or sales that were made 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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