From the Securities Lending Trading Desk

Snack vending machine

We are seeing increased demand for Amplify Snack Brands Inc. as the share price has rallied roughly 28%, following a 52-week low in late December. Two large scale mergers are driving demand in Europe and borrowers are seeking shares of Japanese electronic conglomerate, Toshiba, as it reels from large writedowns of its nuclear business in the US.

Below please find the January 31 edition of From the Trading Desk, which provides timely commentary about top earners, revenue drivers and other factors influencing the securities lending market from the BBH Securities Lending Trading Team. 

Americas

We are seeing increased demand for Amplify Snack Brands Inc. as the share price has rallied roughly 28%, following a 52-week low of $8.81 on 12/30/16. The price hit the low after falling short of analyst profit targets in November. However, the recent rally comes as analysts suggest better positioning for Amplify Snack Brands profit margins. The firm is heavily dependent on SkinnyPop, ready to eat popcorn, for top line growth. Since going public in 2015, Amplify Snack Brands has been unable to maintain their IPO price of $18.00. According to one research firm, there has been a slowdown in consumer packaged goods sales and the past two years have marked declines in growth rates. Fee levels have been trending higher for allocation of Amplify Snack Brands Inc.

Limited availability and bearish sentiment are pushing fee levels higher for 22nd Century Group Inc. a plant biotechnology company is focused on reducing the harm caused by smoking. According to Bloomberg, the U.S. Food and Drug Administration (FDA) has provided the Company with helpful and positive feedback on the company’s combined Modified Risk Tobacco Product Applications (MRTPAs) and Premarket Tobacco Product Applications (PMTAs). However, the share price remains roughly 41% from the 52-week high reached back on 10/4/16.

Asia Pacific

Problems continue to mount at Toshiba Corp as it reels from large writedowns of its nuclear business in the US. The Japanese electronics conglomerate has seen its share price tumble by over 45% since warning investors in December last year that it would have to make writedowns of several billion dollars in relation to the acquisition of Stone & Webster, a nuclear construction company, by its US nuclear technology unit, Westinghouse. We have witnessed an increase in securities lending interest in Toshiba in recent weeks, as it also considers a potential sale of part of its semiconductor business to shore up its depleted balance sheet.

Japanese airbag manufacturer Takata Corp’s share price fluctuated wildly last week as it sought to reassure investors of its future. After falling as much as 60% in the space of seven trading days, shares in Takata rose sharply towards the end of the week after it refuted reports that it was moving toward a court-led bankruptcy which would be significantly disruptive the supply of parts needed to complete the biggest safety recall in automotive history. Earlier this year, Takata agreed a $1 billion settlement with US regulators for its part in hiding the deadly risk of its faulty air bags for about 15 years. We continue to see long term securities lending demand for Takata, whose shares have lost 85% of its value since going public in 2006.

Europe

Could 2017 be the year for European M&A? Last week saw reports of two large scale mergers and acquisitions. In Italy the country’s second largest bank Intesa Sanpaolo SpA has proposed a merger with the nation’s largest insurer Assicurazioni Generali SpA. The deal being reviewed is said to be worth EUR 15 billion with 3 billion in a cash offer and 12 billion in stock. Elsewhere, the UK’s biggest supermarket group, Tesco, has agreed to buy the UK’s biggest food wholesaler, Booker Group, in a £3.7 billion deal. Holders of Booker stock will get 0.861 of Tesco shares and £42.6p as cash for each share they own, representing a 12% premium to Thursday’s closing price.

Banco Comercial Portugues, who currently has a 1.3 billion Euro rights offer taking place, has seen the spread widen between the ordinary stock and rights to new stock. The spread was helped by the temporary short selling ban by the Portuguese securities regulator on the ordinary stock. The issue has a subscription ratio of 15 new shares for every 1 held with the trading period running until the end of the month. New shares are expected to start trading on 9 February.