From the Securities Lending Trading Desk

U.S. online dating company, Match Group, Inc. is becoming increasingly attractive to shorts as the share price seems to have stalled after reaching a high last month. President Trump’s announcement that he intends to impose steep tariffs on imported aluminum and steel has sent shockwaves through Chinese-based producers. Bradford-based company Provident Financial announced a £300m rights issue in Europe.

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

After reaching a multi-year high on 1/29, Ubiquiti Networks’ (UBNT) share price declined as much as 32% in February. UBNT has been a long-term focus of demand.  We reported back in September that Citron Research accused the company of fraud and questioned the company’s revenue recognition, distribution network, high executive turnover, and lack of seasoned executives. Fast forward to February 2018 and a class action suit has been filed against the company alleging “officials exaggerated the size of the Ubiquiti Community by approximately 3,290,000 users in the company’s financial statements and press releases”. On 2/20, Ubiquiti announced that the Securities and Exchange Commission issued subpoenas to the company requesting information about metrics relating to the Ubiquiti Community, accounting practices, and financial information, among other things. While still valued at $65.20 on 3/1, we believe UBNT will remain a focus for patient bears.

Online dating company, Match Group, Inc. (MTCH) is becoming increasingly attractive to shorts as the share price seems to have stalled after reaching a high last month. While some long-term investors are bullish on MTCH as their parent company, InterActive Corps (IAC), is up 254.8 percent in the last five years while the Dow Jones Industrials and S&P 500 are only up 80.24 percent and 79.24 percent respectively, in the same period. However, shorts have a different view and are concerned that Match Group’s Tinder is likely going to see a down trend in advertising income and that the surge from their new offering, Tinder Gold, will correct itself and the share price will trend lower. Online dating is big business and while MTCH is working to acquire Bumble to complement their existing offerings, including Tinder, OkCupid and PlentyOfFish, competitors continue enter the market. We anticipate continued fundamental demand for Match Group as the bears focus on concerns regarding growth, valuation, and competition.

Asia Pacific

President Trump’s announcement that he intends to impose steep tariffs on imported aluminum and steel has sent shockwaves through Chinese-based producers. The US president said that the country’s producers are at a disadvantage compared to Chinese imports and consequently has proposed to impose duties ranging from 49% to 106% on Chinese aluminum foil and 25% on imported steel. Shares in leading producers such as Aluminum Corporation of China, Angang Iron & Steel, and Maanshan Iron & Steel fell in trading following the announcement late last week, as investors expressed concern over a protracted trade war between the two nations. We have witnessed an increase in securities lending demand for all three companies in recent weeks.

Shares in one of Hong Kong’s leading telecom firms plunged after it said it would delay paying a special dividend once again. Hutchison Telecommunications, which is majority owned by billionaire Li Ka Shing’s CK Hutchison Holdings group, announced last week that earnings from the HK$14.8bn ($1.9bn) sale of its fixed-line assets last year will not be used to pay out a special dividend for now as it plans to assess better uses of its cash. Analysts have expressed concerns that the delay will irk investors as the company also faces increased competitive challenges in the mobile network space. We witnessed strong securities lending demand for shares in Hutchison, which slumped by nearly 20% in last week’s trading.

Europe

Bradford-based company Provident Financial announced a £300m rights issue. The proceeds are to shore up its balance sheet after revealing more than £190 million of charges linked to regulatory probes. It has also set aside up to £20 million to deal with the fallout from a separate FCA probe into Moneybarn. But the fundraising comes at a price, a steep 46% discount to the current share price and nearly £30 million of expenses to raise the money. The shares jumped more than 70% in their biggest rise for three years, and clearing 1000p for the first time since last August when a string of profit warnings due to a botched IT upgrade of its consumer credit division led to a share price collapse and the exit of chief executive Peter Crook.

Markets digest European metals manufacturers after US tariffs. Steel stocks borrow levels have been volatile over the past year, and last week was no different as foreign steel producers feel the negative impact of proposed US taxes. Somewhat surprisingly the most popular short – France’s Vallourec share price was up 6% on the week, as the majority of sales in North America are produced domestically. European peers Outokumpu, ArcelorMittal, Tenaris, Acerinox and SSAB slumped and short interest climbed. European Investors continue to keep a watchful eye on the dialogue in Washington as the steel and aluminum tariffs are unlikely to be the last.