From the Securities Lending Trading Desk

IMAX China Holding Inc. reported a drop in first half net income amid criticism it missed out on distribution of several films that were successful in the Chinese market.  We’ve seen strong directional demand for Caesars Entertainment, as short sellers maintain their bearish bets. In Europe, growth in online retailing is triggering heightened borrow fees and utilization for traditional Italian retailers.

Below please find this week’s 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

Strong directional demand for Caesars Entertainment as short sellers maintain their bearish bets despite the share price moving up roughly 56% year-to-date. Caesars Entertainment Operating Co., which owns Caesars and Bally’s casinos, filed for Chapter 11 bankruptcy in 2015 in order to restructure its finances. The restructuring would significantly reduce long-term debt and annual interest payments. The company plans to report 2017 second-quarter results on August 3, 2017.

Restoration Hardware remains in focus after the company recently completed a $700 million share repurchase program, buying half the shares outstanding year to date. The company has turned to cheap financing in order to buy back massive amounts of stock. However, several analysts have lowered its rating on the company as a result, viewing this transaction as an “imprudent use of capital” as it will raise the company’s risk profile.

Asia Pacific

Shares in one of China’s leading automakers declined in trading last week after it reported weak first half results. Great Wall Motor announced that its net profit for the first six months of 2017 fell by 49% to 2.49 billion yuan ($368 million). The company cited the significant decline in net profit was due to a combination of an aggressive marketing campaign and selling its SUVs at steep discounts in an attempt increase its market share at the expense of its rivals. However, new car sales grew by just 2.3% whilst revenue, affected by the discounts, dropped by 1%. We have witnessed a recent reduction in lending demand for Great Wall Motor in the past month after its Hong Kong-listed shares rallied by over 30% in June.

IMAX China Holding Inc. reported a drop in first half net income amid criticism it missed out on distribution of several films that were successful in the Chinese market. IMAX China Holding Inc. announced first half revenues of $16.5 million, compared with $17.7 million the same period last year. IMAX China Holding Inc.’s share price has declined sharply since May as investors speculate it will continue to miss out on popular releases. The company is not recommending the payment of an interim dividend. We have seen long term lending interest for IMAX China Holding Inc.

Europe

Ypsomed ends distribution agreement with Insulet for OmniPod insulin pump. We’ve seen increased interest in the Swiss pharmaceutical and bio tech company Ypsomed after it agreed not to renew an exclusivity agreement with Insulet for the distribution of its insulin pump. The stock fell as much as 29% after the news was reported with short interest rising to 17% according Markit data as of the 27th July. CEO Simon Michel highlighted to investors that the separation meant that sales in the diabetes care segment of the business would be down CHF 120 million resulting in a CHF 24 million hit to operating profit.

Growth in online retailing triggers heightened borrow fees and utilization for traditional Italian retailers. Yoox (YNAP IM), Geox (GEO IM), Tod’s (TOD IM), and Salvatore Ferragamo (SFER IM) have followed the global trend of growing borrow demand in the retail sector. Other than Geox, these stocks have declined over the past quarter, and short sellers continue to pile into these names ahead of their earnings calls this week. In the U.S., short interest for retail stocks is 5.2%, more than double the short interest of the S&P 500 constituents. The SPDR S&P 500 Retail ETF has declined 7.4% this year, while the S&P 500 Index has risen 11%.