September 16, 2019

Opportunity Equity Update for Week Ended 9/13/19

RH Gains on 2Q Beat and Raise While Facebook Declines

Last week, the Opportunity Equity strategy gained 6.63%, outperforming the S&P 500’s 1.02% rise (Exhibit 1). The strategy ended the week up 18.77% YTD, or 296 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 9/13/191

Time Period Opportunity Equity S&P 500
Last Week (9/6 – 9/13) 6.63% 1.02%
MTD 9.01% 2.87%
QTD 3.19% 2.70%
YTD 18.77% 21.73%
Inception (annualized since 6/26/00) 6.91% 5.91%

Source: Bloomberg, Miller Value Partners

RH (RH) gained after reported 2Q results above pre-announced results and raising full year guidance. The company reported 2Q EPS of $3.20 above preannounced EPS of $2.65-2.72 and consensus of $2.68. Total sales increased 9.9% to $706.5M above guidance of $696-699M and consensus of $694.9M. Adjusted EBIT margins came in at 14.86% with FCF of $72.2M. The company raised their full year EPS guidance to $10.53-10.76 from $9.08-9.52 with EBIT margins of 13.6-13.8% and total sales growth of 6.8%-7.3% up from 6-7% previously. Later in the week, the company announced the pricing of $300M 0% convertible notes due 2024 at a 25% conversion premium to closing price of $169.12. The company entered into a hedge to limit earnings dilution as a result of the convertible note issuance up to a 100% premium the stock’s current price. Brighthouse Financial Inc. (BHF) crossed above the 100 and 200-day moving average. ADT Inc. (ADT) crossed above the 50 and 100-day moving average. The company announced the purchase of Systems Group and Fusion Fire Protection to help enchance their commercial and enterprise-level capabilities. The company also issued $600M of 5.75% first-prioirty senior secured notes due 2026 while also commencing a tender offer to buy any and all of their 5.25% senior notes due 2020. Bank of America (BAC) and Tivity Health Inc. (TVTY) crossed above the 50 and 100-day moving average.

Exhibit 2: Significant Contributors to Performance, 9/6/19 – 9/13/19

Name Type Return
RH Equity 16.4%
Brighthouse Financial Inc. Equity 11.4%
ADT Inc. Equity 11.9%
Bank of America Equity 8.8%
Tivity Health Inc. Equity 11.6%

Source: Miller Value Partners

Facebook Inc. (FB) announced the addition of in-app checkout capabilities for certain FB ads as well as a new ad feature which allows advertisers to turn shopping posts into ads on Instagram, with potential purchasing functionality. Qualcomm Inc. (QCOM) presented at the Deutsche Bank Technology conference where they reiterated the end market remains soft. The company sees a lot of opportunity from the roll out of 5G. There was minimal news on Genworth Financial Inc. (GNW), GTY Govtech (GTYHW) and Inc. (AMZN).

Exhibit 3: Significant Detractors from Performance, 9/6/19 – 9/13/19

Name Type Return
Genworth Financial Inc. Equity -0.2%
Facebook Inc. Equity -0.2%
GTY Govtech Warrant Equity -23.3%
Qualcomm Inc. Equity 0.2% Inc. Equity 0.3%

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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