From the Securities Lending Trading Desk

This week we’ve seen increased fundamental demand for Harley-Davidson in the US as some analysts question the current valuation of the stock price. GungHo Online Entertainment shares surged in Tokyo trading following reports of a tie up with Nintendo. Whilst in Europe, IT services provider Atos bid $5.1billion for Gemalto in efforts to create a European leader in cybersecurity.

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.


Stock price volatility amid fraud speculation has pushed fee levels for Cheetah Mobile (CMCM) higher. In October, Prescience Point Research Group released an extremely bearish report suggested CMCM “fabricated” much of their revenue. The report went on to claim “about 87 percent of revenue and 57 percent of Cheetah’s utility revenue simply doesn’t exist, based on data from App Annie Intelligence”. Prescience went on to investigate CMCM’s balance sheet and according to their research of fiscal 2014 to 2017, “Cheetah’s cash balance increased 77.3 percent, yet annualized interest income fell 67.7 percent”. Cheetah’s share price has been volatile since the reports. Falling to $8.05 on 10/26 after the report surfaced, rallying back to $12.80 on 11/21 after announcing Q3 results and ultimately falling another 14% since then. We anticipate continued demand as bearish sentiment remains strong despite CMCM refuting the allegations, calling them “unfounded” and contain “numerous errors, unsupported speculation and a general misunderstanding of the industry and the company’s business model.”

We are seeing increased fundamental demand for Harley-Davidson as some analysts question the current valuation of the stock price.  Lower shipments in the fourth quarter, increased competition, and soft sales as the impacts of hurricane season fueling bearish sentiment. In October, Harley reported Q3 2017 results that beat expectations for revenues but represented declines year over year off nearly 10% in the company’s revenues and around 40% in EPS. Meanwhile, growing competition in the region is creating headwinds for Harley-Davidson, as Royal Enfield launched their first motorcycle in November and rival, Polaris Industries (PII), continues to gain market share. PII has seen sales of its Indian Motorcycle brand soar, at a double digit rate. Despite representing only 2% of Harley’s revenue, India is an important market to the company expanded there offset slowing sales in the U.S. We anticipate continued demand given dividend record date on 12/15 and short interest.

Asia Pacific

Noble Group Ltd is adopting a shrink to survive tactic as a means of paying off its $3.5billion debt. According to media reports, Noble Group Ltd is discussing a debt restructuring with creditors that could potentially include a USD $3.5 billion debt for equity swap. Noble Group Ltd shares, which have fallen more than 80% so far this year, surged 60% higher after details of the potential restructuring emerged. We have seen strong long term securities lending demand for Noble Group Ltd.

GungHo Online Entertainment shares surged in Tokyo trading following reports of a tie up with Nintendo.  Speculation Nintendo is looking to expand tie ups with software developers led to an 18% gain in GungHo Online Entertainment’s share price as investors bet the collaboration would boost growth. Currently 84% of GungHo Online Entertainment’s revenue is generated by a single game. Access to Nintendo’s intellectual property could have the potential to accelerate GungHo Online Entertainment’s efforts to expand its revenue streams. We saw strong lending interest as shares rallied.


Merger and acquisition heats up in the cyber-security sector. Atos, an IT services provider bid $5.1billion for Gemalto in efforts to create a European leader in cybersecurity, digital technologies and payment services. Thierry Breton, the former French finance minister who runs Atos, said the company is “absolutely determined” to complete the transaction, and that it has the backing of state-run Bpifrance Financement SA, Gemalto’s biggest shareholder. A representative for Bpifrance said the fund won’t comment on Atos’s bid, but welcomes consolidation of French technology players. We have witnessed an increase of utilisation of Gemalto as hedge funds look to position themselves ahead of the deal.

Mall Owners unite in order to fend off Online Retailers. Last week saw yet another deal by two Real Estate firms to join forces in order to combat the continued growth of online shopping. Paris based Unibail-Rodamco agreed to buy Australian mall operator Westfield Corp for $15.7 billion in a cash and stock deal valuing each share at $10.01. The news follows a similar story this month of Hammerson Plc agreeing to buy Intu Properties Plc for £4.6 billion. The two deals represents the heightened pressure brick and mortar retailers are getting from online shopping with a focus on malls which are expected to be more resilient to this growth. Lending fees have remained subdued with the timescale for the deals as yet unknown.