From the Securities Lending Trading Desk

Combined Cycle Power Plant

This week in Europe, Portuguese energy grid operator Redes Energeticas Nacionais set their subscription price for its capital raising.  The trading period opened which has driven securities lending demand. We are seeing Skylark Co Ltd shares fall in Tokyo trading after Bain Capital announced plans to sell its full 20% holding via a share placement.  Meanwhile in the US, Accelerate Diagnostics, Inc. (AXDX) has become a focus of directional demand amid price volatility, a trend a we often see with stocks in the Biotech sector.

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 

Accelerate Diagnostics, Inc. (AXDX) has become a focus of directional demand amid price volatility, a trend a we often see with stocks in the Biotech sector. Despite recently missing their sales numbers and falling to a 52-week low, the stock price has rebounded roughly 40%. On 11/2, AXDX reported sales of $828,000 on a comparable basis for the latest quarter, versus the $2.33 million estimate. Following the missed sales report and declining share price, analysts have cut their consensus sales estimate for the fourth quarter to $5.39 million from $6.34 million in the past four weeks. According to Bloomberg, AXDX’s implied one year stock price, volatility is nearly double the comparison average. Bloomberg went on to report that “options volume totaled 4,498 contracts, 434 percent of the 20-day average.” In this case, it is believed the volatility skew, which is affected by sentiment and the supply and demand relationship, signals that demand is driven largely by downside protection, as opposed to upside participation.

We have seen strong short interest for the recent IPO Stitch Fix, Inc. (SFIX), the online personal shopping company after shares sputtered in its first day of trading. After turning profits of $20.9 million in 2015 and $33.2 million in 2016, the company lost $600,000 in its fiscal year ended July 29, according to regulatory filings. Analysts say growth is slowing and attracting new customers has been increasingly difficult and costly. After less than stellar IPO debuts by Blue Apron and Snap, investors have become wary following disappointing stock market openings. With an offering of only 8 million shares it has made it difficult for brokers to source shares in the lending market.

Asia Pacific 

Skylark Co Ltd shares fell in Tokyo trading after Bain Capital announced plans to sell its full 20% holding via a share placement. Private equity firm Bain Capital is ending its six year relationship with the Japanese restaurant chain after gaining control in 2011. At the time, the Bain tie-up was the largest buyout deal in Japan. Bain Capital retained 70% of Skylark Co Ltd when it relisted in 2014, but sold shares in March and June this year leading to declines in the Skylark Co Ltd share price. We saw a moderate increase in securities lending demand following the announcement.

Shares in Chinese auto manufacturers like Byd Co Ltd may be in for a period of volatility as the Chinese government puts the brakes on subsidies. Chinese electronic vehicle sales have risen 45% this year as China seeks to phase out fossil fueled cars. In the past, the Chinese government has used subsidies to support electric vehicle manufacturers, however, according to media reports it may slash subsidies in favor of a quota system. According to these reports, subsidies could be slashed by up to 20% next year, not 2019 as previously indicated. We saw an increase in securities lending interest for BYD Co Ltd. 

Europe 

M&A news brings Fingerprint back into focus. The Swedish electronic systems developer that has been a long-term short for many funds was back in focus this week after a sustained period of refinancing pressure. The share price was up 37% on Thursday after reports that China’s Beijing Watertek Information Technology Co Ltd is preparing a bid. The firm has struggled in the past year with increased competition, price pressure, missed estimates, and the withdrawal of its planned April dividend all of which has led to a share price roughly 20% of its value this time last year. Strong demand was seen off the back of the announcement; however the long term effect on short interest is unknown due to uncertainty of the deal.

Redes Energeticas Nacionais set their subscription price and the trading period started which has driven securities lending demand. The Portuguese energy grid operator REN, after announcing their subscription price for its EU250m capital increase at EU1.877 per share, started trading last week. The trading period will finish on 12/1. The company plans to use proceeds from the capital increase to partially repay a bridge loan which was used to finance the purchase of EDP’s gas unit. The spread between the ordinary line and the rights line so far has been positive but relatively modest.