August 6, 2018

Opportunity Equity Update for Week Ended 8/3/18

OneMain Rises on 2Q Results While Quotient Falls on 2018 Guidance

Last week, the Opportunity Equity strategy gained 0.33%, underperforming the S&P 500’s 0.80% gain (Exhibit 1). The strategy ended the week up 15.90% YTD, or 850 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 8/3/181

Time Period Opportunity Equity S&P 500
Last Week (7/27 -8/3) 0.33% 0.80%
MTD 0.37% 0.88%
QTD 4.23% 4.63%
YTD 15.90% 7.40%
Inception (annualized since 6/26/00) 7.80% 5.81%

Source: Bloomberg, Miller Value Partners

OneMain Holdings Inc. (OMF) rose over the week after announcing 2Q results which beat expectations. Earnings per share came in at $1.18 ahead of consensus of $1.13 and net charge-offs (NCO) were better than expected at 6.6% while originations increased 9% YoY. The company also raised 2018 guidance targeting 8-10% loan growth, stable yields, better net charge-off rate of 6.5-6.7% compared to <7% previously and a lower secured funding 50-55% versus 55-60%, previously. Mallinckrodt PLC (MNK) formed a bullish golden cross as its 50-day moving average crossed above its 200-day moving average. There was minimal news on Intrexon Corp. (XON), Celgene Corp. (CELG) and Discovery Inc. (DISCA).

Exhibit 2: Significant Contributors to Performance, 7/27/18 – 8/3/18

Name Type Return
OneMain Holdings Inc. Equity 5.5%
Intrexon Corp. Equity 6.7%
Mallinckrodt PLC Equity 5.4%
Celgene Corp. Equity 4.6%
Discovery Inc Equity 4.0%

Source: Miller Value Partners

Quotient Technology Inc. (QUOT) fell below the 50, 100 and 200-day moving average after announcing 2Q results. The company reported revenue and EBITDA of $90M and $13M, respectively, in line with consensus of $89M and $13M. Media revenue was up 77% YoY while digital promotions were up 4% YoY. The company raised full year revenue guidance to $398M up from $387M at the midpoint but they lowered EBITDA guidance to $62M from $69M due to the mix shift to media which has a lower gross margin profile and increased investment. Alexion Pharmaceuticals (ALXN) fell below the 50-day moving average after Regeneron (REGN) provided an update on its C5 antibody REGN3918 on its 2Q call stating that it will enter Phase II testing in paroxysmal nocturnal hemoglobinuria (PNH) in early 2019 and will present Phase I data in healthy volunteers in 2H18. Alexion’s ALXN1210 is expected to gain US approval in February 2019 so it will enter the market far ahead of REGN3918. Teva Pharmaceuticals (TEVA) fell below the 50-day moving average after announcing 2Q results. The company reported revenue of $4.7B in-line with consensus and EBITDA of $1.4B slightly above consensus of $1.3B resulting in EPS of $0.78 beating estimates of $0.64. Management maintained 2018 revenue guidance of $18.5-19B but raised EBITDA guidance to $5-5.3B up from $4.9-5.2B and EPS of $2.55-2.80 up from $2.40-2.65. The company also increased its target for free cash flow to $3.2-3.4B up from $3-3.2B for 2018 and management projected 2019 revenue of $18B. Despite the beat across all metrics, many analysts criticized the beat as “low quality”. There was minimal news on RH (RH) and Flexion Therapeutics (FLXN).

 Exhibit 3: Significant Detractors from Performance, 7/27/18 – 8/3/18

Name Type Return
Quotient Technology Inc. Equity -10.9%
Alexion Pharmaceuticals Equity -6.2%
RH Equity -2.1%
Flexion Therapeutics Equity -4.1%
Teva Pharmaceutical Equity -3.5%

Source: Miller Value Partners

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.

©2018 Miller Value Partners, LLC

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