From the Securities Lending Trading Desk

Mobile Phone - Low Battery

We are seeing fundamental demand pick up for Energous Corporation (WATT) after Apple announced their plans for pad-based charging for iPhones and the support of an open wireless charging standard.  Last week, the Italian-based luxury goods manufacturer Prada SpA warned investors that its turnaround plan to reshape its business may take longer than expected.  Montea SCA, the Belgium real estate property developer, announced a EUR 68 million rights issue.

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 

Fundamental demand has picked up for Energous Corporation (WATT) after Apple announced their plans for pad-based charging for iPhones and the support of an open wireless charging standard. Short interest has been strong for WATT as the share price rallied as high as $19.61 following comments from WATT’s CEO that caused some to believe the company was working directly with Apple on technology for wireless charging. Today, the share price tumbled as Apple confirmed they are using Qi technology to develop “AirPower,” their own charging mat that can charge multiple devices at once, for the iPhone 8, iPhone 8 Plus, and iPhone X . WATT had rallied 47% over the past four weeks from the six-month low of $8.95 on 8/21, but this week has been trending lower again.

Applied Optoelectronics Inc. (AAOI) remains a top earning stock in the securities lending market amid bearish sentiment. The share price has fallen roughly 40% from the 52-week high of $99.61, reached back on 8/1. AAOI has been a focus of short sellers that are concerned with the slowdown in Chinese telecom growth and the cyclical industry demand downturn. As a counter to this theory, many bullish investors remain convinced that demand for hyper-scale data centers from giants such as Facebook and Amazon will continue and offset those concerns. Most recently, AAOI is facing a class-action suit amid allegations the company misled investors on 6/13 when the CEO announced second quarter earnings and stated that they expected “another record quarter with our top and bottom-line results expected to exceed our guidance.” The issue followed when, on 8/3, the company revised expectations lower for the third quarter due to “softer than expected demand for our 40G solutions with one of our large customers.” Fee levels have been trending higher amid limited availability and high utilization.

Asia Pacific 

The Italian-based luxury goods manufacturer Prada SpA warned investors last week that its turnaround plan to reshape its business may take longer than expected. First half 2017 revenue for the firm dropped by 5.7 percent as a stronger euro in recent months dented tourist spending in Europe. The owner of luxury brands Church and Miu Miu has been in the midst of a major restructuring plan to close stores and focus more on its e-commerce business, as a reduction in luxury goods demand in Asia has hit the firm harder than its rivals. We have witnessed a gradual increase in securities lending demand for Prada SpA’s Hong Kong-listed shares, which slumped by over 10% in trading last week following the release of its results.

BYD Co Ltd shares surged after China announced plans to phase out fossil fuel vehicles. The Chinese government is working on a timetable to end production and sales of fossil fuel vehicles with a target of producing 7 million New Energy Vehicles (NEV) by 2025. BYD Co Ltd, the largest seller of electric vehicles in China, surged 16% in Hong Kong trading following the announcement. The jump added $2.4 billion to the market value of BYD Co Ltd. Before the announcement, shares in BYD Co Ltd had lost 16% over the past 12 months. We have seen strong long term lending demand for BYD Co Ltd.

Europe 

This week Montea SCA, the Belgium real estate property developer, announced a EUR 68 million rights issue. The capital increase is being done to help the firm finance its future growth strategy as it looks to expand since its initial IPO back in 2015. Existing investors will be able to subscribe to one new share for every six held. The new shares are being offered at a price of EUR 41, representing a 6.9% discount to the theoretical ex rights price (TERP) as of 9/11. Analysts have highlighted that the relatively shallow lending pool in the name may cause subscription rights to trade below their intrinsic value, thus opening up the opportunity for arbitrage spreads. The desk continues to monitor with the trading period set to run from 9/14 – 9/21.

Danish firm, Bavarian Nordic, experienced a notable price drop last week as phase three trials in PROSTVAC failed to deliver. The biotechnology firm announced it will discontinue its phase three study in PROSTVAC, a cancer immunotherapy aimed at reducing the death rate in prostate cancer after an independent data monitor committee confirmed it was futile. The share price fell as much as 59% in Copenhagen off the back of the news, with many analysts recommending sell and setting new price targets for the stock. The news will leave many short sellers kicking themselves as speculation that the vaccine was going to be a success meant short interest fell this year from 14% to lows of 5% in August.