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Sep 26, 2022

Opportunity Equity Update for Week Ended 9/23/22

Christina Siegel Malbon

Bausch Falls on Xifaxan Concerns While Ovintiv and Energy Transfer Follow Commodity Prices Lower

Last week, the Opportunity Equity strategy fell -10.80%, underperforming the S&P 500’s -4.63% decline. (Exhibit 1). The strategy ended the week down -35.61% YTD, 1,400 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 9/23/221

Time Period Opportunity Equity S&P 500
Last Week (9/16 - 9/23) -10.80% -4.63%
MTD -11.79% -6.51%
QTD -1.89% -2.06%
YTD -35.61% -21.61%
Inception (annualized since 6/26/00) 5.85% 6.30%

Source: Bloomberg, Miller Value Partners

Bausch Health Companies Inc. (BHC) fell slightly after Norwich Pharmaceuticals asked a Delaware federal judge to narrow a ruling which prevents it from bringing a generic version of Bausch’s XIFAXAN to market for treating IBS with diarrhea, noting that they dropped the second, infringing usage (for hepatic encephalopathy) from its new drug application. Bausch announced the approval of hay fever medication RYALTRIS in Canada in partnership with Glenmark Pharmaceuticals. Williams Trading upgraded Canada Goose Holdings Inc. (GOOS) to Hold from Sell, maintaining its C$23 price target (2% upside). There was limited news on Pangaea One, L.P.

Exhibit 2: Significant Contributors to Performance, 9/16/22 - 9/23/22

Name Type Return
Cash Cash 0.0%
Pangaea One, L.P. Other 0.0%
*New Security* Equity -0.1%
Bausch Health Companies Inc. Equity -4.9%
Canada Goose Holdings Inc. Equity -4.1%

Source: Miller Value Partners

Ovintiv Inc. (OVV) fell through the 50 and 200-day moving averages while Energy Transfer LP (ET) fell through the 50, 100 and 200-day moving averages following commodity prices lower over the course of the week. Ovintiv hosted a webcast during the week providing a deep dive on the company’s Canadian Montney assets which they believe are misunderstood by the market. Their Montney asset has 10+ years of liquids-rich inventory and 30+ years of premium dry gas inventory with growth optionality from new LNG projects out of western Canada. The company is committed to returning free cash flow (FCF) to shareholders via buybacks and dividends with the company focusing on buybacks at these depressed prices. Citi raised its price target on Ovintiv to $65 from $57 (53% upside), while Bank of America raised its price target to $70 from $60 (64% upside).

Farfetch Ltd (FTCH) fell through the 50-day and 100-day moving averages after the company announcing its plans to raise a $400M First Lien Covenant-lite Term Loan B. Initial pricing talks were around SOFR+600-625. Fitch assigned the company a B- rating, while Moody’s assigned a B3 rating to the company. Expedia Group, Inc. (EXPE) fell along with other consumer stocks as fear of a recession increased.

Teva Pharmaceutical Industries Limited (TEVA) fell below the 100 and 200-day moving averages. CEO Kare Shultz revealed his employment contract would not be renewed after its expiration in November 2023 but noted that he would likely stay on as a director. The company expects to finalize its nationwide opioid litigation settlement by the end of the year with payments beginning in 2023.

Exhibit 3: Significant Detractors from Performance, 9/16/22 - 9/23/22

Name Type Return
Ovintiv Inc. Equity -14.0%
Farfetch Ltd Equity -17.4%
Expedia Group, Inc. Equity -10.4%
Teva Pharmaceutical Industries Limited Equity -10.3%
Energy Transfer LP Equity -10.8%

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