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Feb 07, 2023

Opportunity Equity Update for Week Ended 2/3/23

William Keenan

Meta Rises on Improved Expense Outlook While Canada Goose Falls on Earnings Miss

Last week, the Opportunity Equity Strategy's representative account gained 4.25%, outperforming the S&P 500’s 1.64% rise. (Exhibit 1). The strategy ended the week up 25.56% YTD, 1,770 basis points ahead of the S&P 500.

Exhibit 1: Performance of Opportunity Equity Representative Account Net of Fees, Versus S&P 500, Through 2/3/231

Time Period Opportunity Equity Representative Account S&P 500
Last Week (1/27 - 2/3) 4.25% 1.64%
MTD 3.86% 1.48%
QTD 25.56% 7.86%
YTD 25.56% 7.86%
1 Year -12.48% -6.07%
5 Year 5.41% 10.34%
10 Year 10.85% 12.73%
Inception (annualized since 6/26/00) 6.80% 6.75%

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

Meta Platforms, Inc. (META) rose above the 200-day moving average after reporting mixed 4Q 2022 results while lowering 2023 expense guidance and increasing their share repurchase authorization by $40B (~8.1% of shares outstanding). Revenue of $32.2B was in-line with consensus estimates, as were monthly active users (MAUs) of 2.96B, and average revenue per user (ARPU) of $10.86. EPS of $1.76 came in well below expectations for $2.95 driven by higher restructuring expenses. Excluding restructuring costs, EPS came in at $3.00 – slightly ahead of consensus. Meta repurchased 60M shares over the period for $6.9Bn (2.4% of shares outstanding). The company guided for Q1 revenue of $26B-$28.5B, in-line with the street of $27.5B reflecting a 2% FX headwind. FY23 expense guidance was lowered to $89B-$95B (from $94Bn-$100Bn) and capex guidance to $30B-$33B (from $34B-$37B). Citi raised its price target to $228 from $168 (22% upside), while Wells Fargo raised its price target to $250 from $165 (34% upside).

Both Silvergate Capital Corporation (SI) and Coinbase Global, Inc. (COIN) moved higher with risk assets after the US Federal Reserve telegraphed a more dovish stance at the most recent Federal Open Market Committee (FOMC) meeting. Coinbase rose above the 200-day moving average after the company successfully petitioned to dismiss a class action lawsuit brought before Judge Paul A. Engelmeyer in New York District Court alleging that the company had facilitated the sale of unregistered securities on its platform. Silvergate rose above the 50-day moving average. Bloomberg News reported that the bank is facing a probe by the US Department of Justice (DOJ) regarding hosting accounts with ties to Sam Bankman-Fried’s various business entities including FTX and Alameda. Filings revealed that Blackrock and State Street both increased their stakes in the bank to 7.2% from 5.9% and 9.3% from 5.3%, respectively.

SoFi Technologies, Inc. (SOFI) rose after reporting 4Q 2022 results that came in well ahead of consensus estimates. The company reported adjusted net revenue of $443M ahead of consensus of $424M showing strong membership growth (+51% y/y), and EBITDA of $70M beating expectations of $43M. The company announced full year revenue guidance of $1.925-2.000B marginally below consensus of $1.978B and EBITDA of $260-280M, ahead of consensus at $243M. Most notably, the company now expects to reach GAAP net income profitability in 4Q 2023. The guidance assumes that student loan volumes will remain pressured until the moratorium expires in August. Morgan Stanley raised its price target to $6 from $5 (-20% downside), while Credit Suisse lowered his price target to $7.50 from $8 (1% upside).

Norwegian Cruise Line Holdings Ltd. (NCLH) rose after the company announced the successful closing of its $600M 8.375% senior secured notes offering due 2028, using the proceeds to pay down existing term loans under its senior secured credit facility due in January 2024. Norwegian competitor Carnival announced its Holland America Line had record bookings for the week of January 20th, 20% above 2019 levels, which Barclays believes will re-assure investors on the strength of 2023’s “wave season.”

Exhibit 2: Significant2 Contributors to Opportunity Equity Representative Account Performance, 1/27/23 - 2/3/23

Name Type Net Return
Meta Platforms Inc. Equity 22.9%
Coinbase Global, Inc. Equity 21.6%
Silvergate Capital Corporation Equity 38.7%
SoFi Technologies, Inc. Equity 25.6%
Norwegian Cruise Line Holdings Ltd. Equity 10.4%

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

Canada Goose Holdings Inc. (GOOS) fell after reporting 3Q earnings that disappointed due to COVID headwinds in China, similar to other luxury brands, but noting that January was showing a strong rebound. Net sales came in at C$577M below consensus of C$624M with adjusted EPS of C$1.27 well below consensus of C$1.61. The company lowered FY22 guidance to net sales of C$1.175-1.195bn (down from C$1.2-1.3B) vs consensus of C$1.216bn, with operating margins of 14.2-15.2% (down from 18.3-21.3%) vs consensus of 16.9% and adjusted EPS of C$0.92-1.03 (from C$1.31-1.62) vs consensus of C$1.22. Cowen lowered its price target to $22 from $26 (3% upside), while CFRA lowered its price target to $35 from $42 (64% upside).

Beacon, Alibaba Group Holding Limited (BABA)’s film distribution and advertising arm announced that Chinese Lunar New Year holiday’s box office results showed an 11.89% y/y increase in ticket sales, exceeding pre-pandemic levels. Chinese equities were broadly down over the course of the week after US Secretary of State Anthony Blinken delayed his visit due to controversy over an alleged Chinese spy balloon flying over US airspace.

The United Kingdom’s Competition and Markets Authority (CMA) began its review of Farfetch Limited’s (FTCH) minority stake in Yoox-Net-Porter and is considering whether the deal may lead to a substantial lessening of competition. Keybanc lowered its price target to $11 from $13 (58% upside).

Ovintiv Inc. (OVV) fell below the 50, 100, and 200-day moving averages while Chesapeake Energy Corporation (CHK) also fell following commodity prices lower over the course of the week.

Exhibit 3: Significant2 Detractors from Opportunity Equity Representative Account Performance, 1/27/23 - 2/3/23

Name Type Net Return
Ovintiv Inc. Equity -9.6%
Alibaba Group Holding Limited Equity -10.2%
Canada Goose Holdings Inc. Equity -6.4%
Chesapeake Energy Corporation Equity -3.7%
Farfetch Limited Equity -1.8%

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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