May 28, 2019

Opportunity Equity Update for Week Ended 5/24/19

Avon Gains on Natura Acquisition, While Mallinckrodt Falls on Legal Concerns

Last week, the Opportunity Equity strategy declined -3.16%, underperforming the S&P 500’s -1.14% decline (Exhibit 1). The strategy ended the week up 8.62% YTD, or 505 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 5/24/191

Time Period Opportunity Equity S&P 500
Last Week (5/17 – 5/24) -3.16% -1.14%
MTD -9.65% -3.87%
QTD -4.50% 0.02%
YTD 8.62% 13.67%
Inception (annualized since 6/26/00) 6.52% 5.62%

Source: Bloomberg, Miller Value Partners

Avon Products (AVP) gained last week after Natura (NATU3) announced it’s acquiring the company in an all-share transaction valued ~$4.56, implying an equity market cap of $2.02B and enterprise value of $3.7B. Avon shareholders will receive 0.3 Natura shares for each Avon share and the deal is expected to close in early 2020. Park West Asset Management disclosed a 5% passive stake in Stich Fix (SFIX). Flexion (FLXN) moved above its 100-day moving average after Board Member C. Ann Merrifield purchased 8,000 shares for over $100,000. Quotient (QUOT) Board Member Andrew Gessow purchased 10,000 shares for over $100,000. There was minimal news on ADT (ADT).

Exhibit 2: Significant Contributors to Performance, 5/17/19 – 5/24/19

Name Type Return
Avon Products Inc Equity 19.4%
Stitch Fix, Inc. Equity 8.2%
ADT Inc Equity 2.0%
Quotient Technology Inc. Equity 1.3%
Flexion Therapeutics Equity 1.8%

Source: Miller Value Partners

Mallinckrodt (MNK) fell after filing a lawsuit against the US Department of Health and Human Services (HHS) and Centers for Medicare and Medicaid Services (CMS) in relation to a CMS decision to lower the base date average manufacturer price used to calculate Medicaid drug rebates for Acthar. Management noted the decision could lower Acthar’s run-rate revenues by roughly 10% ($100M per year) and create up to a $600M retroactive rebate liability.  Bausch Health (BHC) fell below its 50, 100, and 200-day moving averages. Qualcomm (QCOM) fell below its 50-day moving average after a US District Judge ruled against the company in its antitrust suit with the FTC, citing the company unlawfully suppressed its competition in baseband modems and charged excessive licensing fees. Endo International (ENDP) fell in sympathy with generic pharmaceutical headline concerns. There was minimal news on American Airlines (AAL).

Exhibit 3: Significant Detractors from Performance, 5/17/19 – 5/24/19

Name Type Return
Mallinckrodt plc Equity -34.5%
Qualcomm Inc Equity -18.8%
Bausch Health Companies Inc Equity -6.1%
Endo International plc Equity -8.7%
American Airlines Group Inc Equity -8.1%

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. Content may not be reprinted, republished or used in any manner without written consent from Miller Value Partners.

©2019 Miller Value Partners, LLC

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