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Aug 30, 2022

Opportunity Equity Update for Week Ended 8/26/22

Christina Siegel Malbon

Farfetch Rises on Richemont Deal while Splunk Falls on Guidance

Last week, the Opportunity Equity strategy fell -0.94%, outperforming the S&P 500’s -4.02% loss. (Exhibit 1). The strategy ended the week down -24.48% YTD, 1,048 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 8/26/221

Time Period Opportunity Equity S&P 500
Last Week (8/19 - 8/26) -0.94% -4.02%
MTD 3.94% -1.62%
QTD 15.07% 7.45%
YTD -24.48% -14.00%
Inception (annualized since 6/26/00) 6.63% 6.76%

Source: Bloomberg, Miller Value Partners

Farfetch Ltd (FTCH) rose above the 50 and 100-day moving averages after the company announced a landmark agreement with Richemont leaving them with a 47.5% ownership stake in Yoox Net-A-Porter and initiating the transition of the majority of Richemont’s brands to the Farfetch Platform Services (FPS) offering to support their online and omni-channel offerings. This is a turning point for the company giving them strong support in their move to becoming the platform for luxury. Later in the week the company reported mixed results that came in better than the market was expecting. The company reported GMV of $1.02B vs $1.05B expected, supported by stronger brand sales partially offset by lower marketplace sales due to continued weakness in China and negative FX headwinds. Despite the miss on GMV, the company reported revenue of $579M ahead of consensus of $558M with gross margins beating by 300bps coming in at 46% leading to an EBITDA beat at -$24M vs -$35M expected. The company took down full year guidance as a result of continued FX headwinds for the remainder of the year.

Ovintiv Inc. (OVV) rose above the 100-day moving average following commodity prices marginally higher over the course of the week. Goldman Sachs lowered its price target to $61 from $63 (14% upside).

Alibaba Group Holding Ltd. (BABA) rose after the China Securities Regulatory Commission (CSRC) and the US Public Company Accounting Oversight Board (PCAOB) reached an agreement allowing US auditors to inspect China-based audits setting out the first steps needed to prevent the potential delisting of Chinese based companies from US based exchanges.

Cleveland-Cliffs Inc. (CLF) announced a spot market price increase of minimum $75 per ton in North America. The announcement follows similar moves from competitor Nucor who announced a $50/t increase earlier this month.

Green Thumb Industries Inc. (GTBIF) rose above 100-day moving average on limited news.

Exhibit 2: Significant Contributors to Performance, 8/19/22 - 8/26/22

Name Type Return
Farfetch Ltd Equity 47.4%
Green Thumb Industries Inc. Equity 20.5%
Ovintiv Inc. Equity 7.7%
Alibaba Group Holding Ltd. Equity 9.3%
Cleveland-Cliffs Inc. Equity 5.3%

Source: Miller Value Partners

Splunk Inc. (SPLK) fell through the 50 and 100-day moving averages after reporting strong Q2 results but lowering full year guidance. Revenue came in ahead of expectations at $799M vs $747M expected, with total ARR growing 27% y/y vs consensus of 25%. The company reported strong EBIT with margins hitting 3.6% vs consensus expectations at -9% leading to an adjusted EPS beat at $0.10 vs expectations at -$0.36. The company marginally lowered full year Cloud ARR guidance to $1.8B (+35% YoY) down from at least $2B at the beginning the year. The guide down is due to a delay in timing of large cloud transformation deals. The company raised full year revenue guidance to $3.375B from $3.275B, full year operating margins to 8% from 0-2%, and FCF of at least $400M ($2.47 per share, 2.6% yield). Credit Suisse lowered its price target to $150 from $180 (59% upside), while Morgan Stanley raised its price target to $133 from $128 (36% upside)., Inc. (AMZN) had a number of headlines over the week as it was reported that the company was among the bidders going after Signify Health (SGFY). This was followed by the company announcing their intentions to close its Amazon Care telehealth offering by the end of the year. Peloton announced an agreement where they will be selling their products through the retail giant while Amazon announced its plan to show ‘Thursday Night Football’ in bars via a DirectTV deal. Finally, the week ended with rumors of Amazon mulling a bid to acquire EA Sports.

Mattel, Inc. (MAT) fell through the 100-day moving average while Teva Pharmaceutical Industries Limited (TEVA) fell on limited news.

Exhibit 3: Significant Detractors from Performance, 8/19/22 - 8/26/22

Name Type Return
Teva Pharmaceutical Industries Limited Equity -7.5%
Splunk Inc. Equity -13.6%, Inc Equity -5.4%
Mattel, Inc. Equity -5.5%
*New Security* Equity -16.5%

Source: Miller Value Partners

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1 The performance figures reflect the deduction of a model investment management fee of 1% (the highest fee for separate accounts under our fee schedule) and certain other expenses. For important information about Opportunity Equity Strategy performance, please click on the Opportunity Equity Strategy 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 based on the representative account 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