From the Securities Lending Trading Desk

fashion-shopping

The US saw increased demand for SunPower Corp. last week, as the stock rallied on unusually high volumes. The global luxury goods and fashion industry is looking forward to better days in 2017 amid signs of a rebound in the consumer markets in mainland China and Hong Kong, whilst in Europe Capital raising season is in full flow with strong demand for Banco Comercial Portugues and UBI Banca SPA.

Below please find the January 17 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

There is strong demand for AEP Industries Inc. as their merger with Berry Plastics Group, Inc. is expected to close on 1/20. The merger is subject to stockholder approval at the special meeting of AEP stockholders on 1/18. Holders of AEP common stock may elect to receive, for each share of their AEP common stock, including restricted common stock, either: (i) $110.00 in cash (subject to proration) or (ii) 2.5011 shares of Berry common stock. Based on Berry Plastics Group’s close on 1/11 of $50.87 the stock election is valued at roughly $127.23, which heavily favors the stock election for shareholders.

Last week we saw increased demand for SunPower Corp. as the stock rallied on unusually high volumes.  On 1/11, trading volume spiked to 5.777mm, up from the six month daily trading average of 3mm. According to analysts an increase like this is typically interpreted as a bullish signal. Over the past 52-weeks SunPower Corp. has traded between $25.65 (2/4/16) and $6.30 (11/9/16) per share. In general, the alternative energy industry has been a focus as the Trump administration seeks to scale back regulations and increase drilling activity which would keep oil prices more competitive than alternative energy, potentially placing pressure on individual companies in the sector. Additionally, federal tax incentives for the industry may be at risk under a president who has historically not been a major supporter of alternative energy.

Asia Pacific

The global luxury goods and fashion industry is looking forward to better days in 2017 amid signs of a rebound in the consumer markets in mainland China and Hong Kong. Luxury brands such as Burberry, Prada and Richement have struggled of late, as Chinese consumer’s scaled back purchases on luxury items amid Beijing’s anti-corruption campaign and a cooling Chinese economy. However in recent months several prominent companies in the sector, including Prada, have reported a stabilization in sales figures, particularly in Hong Kong. We have witnessed long-term securities lending demand for Chow Tai Fook Jewelery and Prada, two firms that have been particularly affected by the slowdown in Chinese consumer spending in recent years.

One of Australia’s largest infant formula and baby food producers plunged into another crisis last week after the ousting of its chief executive officer, which sent the share price into a tailspin.  Bellamy’s Australia Ltd’s board voted to remove CEO Laura McBain after months of internal wrangling. The company remains under immense pressure following revelations in December last year of weaker than reported sales of its products and a significant loss of market share. The company is also facing class action lawsuits by several law firms on behalf of disgruntled shareholders for failing to adequately update investors of issues that may affect future earnings. We have witnessed long-term securities lending demand for Bellamy’s Australia Ltd which has lost over 65% of its share value in the past year.

Europe

The trump effect isn’t enough to clear the emissions from an already clouded automotive industry. We’ve seen demand for Fiat Chrysler Automobiles NV due to the accusation by the US government that they used software in 104,000 vehicles, namely its Jeep Cherokee and Ram Pickup trucks that allowed them to exceed pollution limits. The car manufacturer isn’t the first in the industry to be accused by the Environmental Protection Agency, with Volkswagen being accused less than three years ago. Just this week VW agreed to pay a $4.3 billion fine to settle the matter. Fiat’s stock fell from circa $10.30 to as low as $8.48 during US trading hours with the potential fines estimated to be $4.6 billion ($44,539 per car) according to Cynthia Giles EPA’s chief enforcement officer.

Capital raising season is in full flow with strong demand for Banco Comercial Portugues and UBI Banca SPA. The Portuguese lender announced plans to raise 1.3 billion euros in order to repay contingent convertible bonds and improve its balance sheet. The 15 per 1 issue is due to trade from the 19th-30th Jan. UBI Banca SPA planned to raise as much as 400 million euros in order to buy three rescued good banks, details are yet to be announced on the capital raise. Dios Fastigheter AB rights started trading last week but had a negative spread. However the potential for an oversubscription on the rights has maintained demand.