From the Securities Lending Trading Desk

Stock Market Abstract - World Economy

US Software maker Nutanix Inc. more than doubled in its trading debut after raising $238 million in an Initial Public Offering. Demand for Sharp Corp has increased following news that it is negotiating to sell organic LED screens to Apple Inc. In Europe, lending interest was sparked by the news of a merger between Henderson Group Plc and Janus Capital Group Inc.

Below please find the October 11 edition of From the Trading Desk, which provides timely commentary about top security earners, revenue drivers and other factors influencing the securities lending market from the BBH Securities Lending Trading Team.

Americas 

Following the slowest start to a year for IPOs since the financial crisis, and the fewest U.S. technology IPOs in seven years, Nutanix Inc. more than doubled in its trading debut after the software maker raised $238 million in an initial public offering. The company, which makes software that can store and analyze data on inexpensive, standard servers, surged 131% on 30th September giving it a market value of around $5.1 billion. Despite the spike in share price, the company has not a made a profit in the last five years and reported a net loss in fiscal 2016, widened to $168.5 million from the previous year. Some investors question if the company’s valuation is warranted, resulting in directional demand.

Shares fall for soft-drink maker, National Beverage Corp. after short selling firm accuses company of manipulating earnings. Glaucus Research Group questioned the company’s accounting and said its shares could lose two-thirds of their value as problems come to light. The company called the report “false and defamatory.” National Beverage saw its price rally 38% in the first six months of the year largely due to its popular sparkling water drink La Croix. Since the report was released shares have retreated more than 8%. As bearish bets against the company continue to increase, borrowing costs have trended upwards.

Asia Pacific 

China Evergrande Group shares surged in Hong Kong trading after announcing a reorganization plan designed help raise additional capital. China’s largest developer said it plans to move some of its assets into a separate property company listed in Shenzhen. The move will allow China Evergrande Group to raise equity in China, where valuations of developers tend to be higher, plus it can avoid the regulatory approvals required to conduct a Hong Kong stock offering. We have seen long term lending interest for China Evergrande Group whose debt to equity ratio surged to 600% this year.

Sharp Corp shares rallied last week following the news that it is negotiating to sell organic LED screens to Apple Inc. Sharp Corp has committed over $2 billion to the development of OLED technology, which promises sharper images and lower battery drain for smartphones. The investment of OLED was part of a strategic plan the company adopted following its takeover by Foxconn Technology Group Inc. Sharp shares have climbed more than 10 percent this year and we are seeing declining lending interest.

Europe 

Merger news of Henderson Group Plc and Janus Capital Group Inc. has grabbed headlines and sparked Securities Lending interest this week. As Henderson Group Plc’s and Janus Capital Group Inc. announced merger plans this week, it caused many investors to wonder if this is the beginning of more mergers in the investment industry, as companies struggle with increased competition and regulation. Lower-fee passive investment firms have gained market shares to active managers despite performance. Both Henderson Group Plc’s and Janus Capital Group Inc. saw their share prices rally on the news. According to the company’s statement, the merger will involve a share exchange in which each Janus share will be exchanged for 4.719 newly issued shares in Henderson. This deal is expected to close in Q2 2017.

Swedish electronic scanner Fingerprint Cards remains among the most sought after stocks to short in Europe. According to DataLend, lendable shares jumped from 34.6mm to 41.6mm in the first week of October. Despite new supply entering the marketplace, rates have held steady in the circa 30% range. On Monday, October 10th, Fingerprint Cards announced that business developer and former CEO, Johan Carlstroem will be leaving the firm, but shares were unfazed and rallied 4%. The desk sees continued interest in Fingerprint Cards at its October levels ~SEK 100 and 30% lending fee. Shares have traded in a range of SEK 62 – SEK 135 over the past year.