We are seeing increased demand for IPOs for Canada Goose (GOOS) and ProPetro Holding Corp. (PUMP), which were unable to maintain their early gains. Asia has seen increased lending demand for Toshiba Corp. and Ezra Holdings following bankruptcy concerns. Whilst in Europe, there are fears over the future profitability of Electrolux, Fiat Chrysler, and Fingerprint.
Below please find March 28 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.
Demand increases for recent IPOs: Canada Goose (GOOS) and ProPetro Holding Corp. (PUMP). Both stocks rallied in their first days of trading but have been unable to maintain the early gains. Early purchasers of GOOS are expecting international sales growth of the retailer’s flagship coats, as well as potential expansion into new products. GOOS is expected to expand its offerings to include knitwear, footwear, hats, and gloves as well as travel gear and bedding in the coming years. However, bears are concerned that the $900 parkas are more expensive than their publicly traded peers’ equivalents, brand recognition is lower than competitors’ and that celebrity clientele or product placement can only boost the brand for so long. The other focus has been on PUMP, the Texas-based oilfield services company whose hydraulic fracturing fleet focuses on Permian Basin operating conditions. PUMP also had an initial boost in price but has traded lower since last week. Some investors are bearish on PUMP as stock prices in the industry in general have been unstable and also because the company is not planning to pay any dividends “in the foreseeable future”. Many analysts warn of the short term trading “halo” on IPOs as the share price pops but then declines as investors question the valuation of the newly public companies.
When CEO Eddie Lampert disclosed in the Sears Holdings Corp. annual report that “substantial doubt exists” with regard to the company’s financial viability, the share price reacted and so did bears. There was an uptick in directional demand for Sears Holdings, the parent company to Sears and Kmart, as the share price fell 12% on 3/22. Earlier this month, in an effort to sell assets to raise cash, Sears sold its Craftsman tool brand to Stanley Black & Decker in a deal valued at more than $775 million. They went on to warn that as they run out of assets to sell and struggle to secure credit from suppliers, the result will be less merchandise in stores. In addition, analysts suggest that retailers and department stores are in a sector of transformation and major changes are still to be seen. Fee levels increased in response to greater demand and lower liquidity.
Japanese electronics conglomerate Toshiba Corp saw some temporary respite from its recent problems after investors welcomed the possibility of a voluntary bankruptcy of its troubled nuclear equipment subsidiary in the US. Shares in Toshiba rose sharply in trading late last week on news that Westinghouse may consider filing for Chapter 11 bankruptcy. Investors hope this action will in turn limit the losses for Toshiba, which has had to write-down almost $6.3 billion as a result of construction and project delays at various nuclear plants that Westinghouse had started to build. We have witnessed increased securities lending demand for Toshiba, which has seen its share price decline by over 50% since December of last year.
Fears that corporate debt levels in Singapore are not sustainable mounted after Ezra Holdings Ltd filed for Chapter 11 bankruptcy protection in the U.S. Ezra Holdings Ltd, which provides engineering services to the offshore oil and gas sector, has suffered from the ongoing weakness in the oil price since 2014. Ezra bondholders now face uncertainty as the U.S. bankruptcy process proceeds. We have seen strong long term lending demand for Ezra Holdings Ltd.
Concerns over the future profitability of Electrolux, Fiat Chrysler, and Fingerprint result in increased securities lending demand. Fingerprint had its average price target slashed by 41% due to the latest profit warning from the company. Expectations are that revenue will decline more than 50% in Q1. There has been some negative sentiment for Electrolux after Sears warned about its ability to continue operations. The company has had difficulty keeping costs aligned with store-sales declines, compounded by reduced brand relevance. Electrolux owns approximately 6% of Sears. Lastly, share price of Fiat Chrysler has been under pressure after reports that French prosecutors are probing the group’s diesel emissions.
Akzo Nobel shares jump after reconsidering PPG bid. Akzo rejected the $24billion takeover bid by PPG stating that it was substantially too low and would lead to job cuts. However key investors have pressed CEO Ton Buchner to meet with PPG to push for a deal.