From the Securities Lending Trading Desk

This week in the US, the bankruptcy of Toys R Us has put a focus on the toy industry and short sellers have set their sights on Mattel Inc. We are seeing China Hongqiao Group shares spiked 23% after they resumed trading following a seven month suspension. Meanwhile in Europe, Petroleum Geo-Services missed 2017 Q3 results.

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 

We are seeing increased demand for Under Armour Inc. as the company failed to meet analyst’s expectations. Under Armour’s ‘A’ share (UAA) stock price was down more than 28% last week and its ‘C’ share (UA) stock price was down 27% over the same period. In a press release, Under Armour reported revenue of $1.41 billion, a decline of 5% vs the same quarter last year. This marked their first year-over-year revenue decline as a public company. The sports apparel company also reduced its 2017 revenue growth outlook to ‘low single-digit percentage rate’ as opposed to earlier expectations of 11%. UAA is struggling with discounted product in North America (this is also the region that generates their largest income), competition from the likes of Nike and Adidas, and the decline in brick and mortar sporting good chains. Fee levels have been spiking as we see increased bearish sentiment.

The bankruptcy of Toys R Us has put a focus on the toy industry and short sellers have set their sights on Mattel Inc. Mattel Inc. has seen their share price dwindle from a high of $22.91 back on 5/31 to $13.04 at the close on 11/02, a 43% decline. Recent declines came as the company suspended their quarterly dividend and reported third-quarter earnings that missed Wall Street’s expectations. Although Hasbro, Inc. has avoided the spotlight of shorts, the share price has also declined, closing at a six-month low on 11/2. The industry as a whole is struggling with large amounts of debt, takeover speculation, a market demand shift from traditional toys towards technology, and uncertainty amid the Toys R Us bankruptcy. Subsequently, stocks in the sector have struggled to reassure investors of the worth. Utilization for Mattel has increased 22% over the past month and fee levels are trending higher amid growing fundamental demand.

Asia Pacific 

Standard Chartered Plc profit missed expectations, highlighting the ongoing challenge for the bank to restore growth and pay a dividend. Shares in Standard Chartered Plc fell despite CEO Bill Winters’ efforts to rebuild the bank’s reputation and balance sheet, following billions of dollars in write-downs and regulatory fines. Standard Chartered doubled quarterly net profits, however analysts were disappointed with the banks revenue growth, which missed expectations and was outpaced by expenses. We saw an increase in lending demand for Hong Kong listed shares of Standard Chartered Plc following the earnings announcement

China Hongqiao Group shares spiked 23% after they resumed trading following a seven month suspension. China Hongqiao Group began trading for the first time since March after being suspended following the release of a short-selling research report that questioned the company’s profitability. Following the report’s release, an external auditor found no evidence that the accusations were true and China Hongqiao published results that showed an 85% increase in net income from last year. China Hongqiao Chairman Zhang Shiping purchased 18m shares after the shares resumed trading to show confidence in the company. We saw strong lending demand for China Hongqiao after the shares resumed trading.

Europe 

Furgo NV announces EUR 100 million Convertible Bond. The Dutch firm Furgo, which is one of the world leaders in collecting, producing, and interpreting geological data, announced it will issue a EUR 100 million Convertible Bond due in 2024. Proceeds for the capital raise will be used to repay the United States Private Placement note holders whilst reducing interest expense and increasing the firm’s debt horizon. The desk saw strong initial demand but lending fees remained well contained due to there being enough supply to be able to hedge the deal.

Petroleum Geo-Services missed 2017 Q3 results. Resurgence in demand has been seen for the Norwegian oilfield service company after the company missed Q3 results. The stock price fell approximately 23% on the news. Towards the end of last week the stock price rebounded 6.3% after executives started buying stock back. Securities lending demand remains strong.