From the Securities Lending Trading Desk

Bearish sentiment is growing in the US as Diebold Nixdorf Inc. struggles to avoid a liquidity crisis. Shares in car manufacturer BYD Co. surged in Hong Kong trading due to strong sales momentum in the Chinese electronic vehicle market. European equity outlook concerns drive an increase in securities lending demand, with Nyrster slumping up to 22%, the highest intraday drop in 2 and a half years.

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

Trupanion, Inc. (TRUP), which provides pet health insurance has been a long-term focus of fundamental demand. TRUP recently reported another quarterly loss, the 2Q18 loss was down by 56% to $0.3 million from Q2 2017. The share price reached a 52-week high on $46.17, which is more than double the value on 9/7/17 the 52-week low of $21.00. TRUP has seen their price targets raised by several analysts over the past few weeks as well. However, bears have a different view, suggesting the share price is over-valued based on limited barriers for entry to market from other insurers and concerns that will lead to increased competition. In June, TRUP had an additional share offering with a lock-up expiry of 9/19. Often, we see stock prices decline after expiry as shareholders are then able to sell their shares.

As ATM and POS services provider, Diebold Nixdorf Inc. (DBD), struggles to avoid a liquidity crisis, bearish sentiment is growing. Recently DBD’s share price fell to a 52-week low of $3.95 amid reports the company is in talk with its creditors in an attempt to gain greater financial flexibility. DBD recently had to reduce its guidance for the full 2018 year after reporting a surprise loss for the second quarter. Deibold’s financial issues have resulted from new competitors in the market such as mobile apps like Venmo that allow people to pay each other without cash. In addition, the company continues to have huge expenditures related to a 2016 buyout of their German rival. Fee levels are trending higher as investors remain concerned about the future of DBD. Diebold bonds are also in focus.

Asia Pacific

Xiaomi Corp announced its first results since its USD $5.4 billion July IPO which showed a 68% rise in revenue, but a decline in margins. The announcement initially prompted a share price rally which later reversed as concerns about falling margins and rising costs sent shares lower. Xiaomi Corp’s strong earnings performance was helped by major inroads into India and Indonesia plus a strong online services business. Shares fell as investors questioned whether Xiaomi Corp deserves to be valued at similar multiples to high growth internet companies. We have seen strong securities lending demand for Xiaomi Corp since its IPO.

Shares in car manufacturer BYD Co surged in Hong Kong trading due to strong sales momentum in the Chinese electronic vehicle market. Electric Vehicles (EVs) reached almost 4% of new passenger vehicle sales in China in the second quarter of 2018, up from under 1% three years ago. The transition to EVs in China looks set to continue in 2019 as automakers will be required to sell a set percentage of ‘New Energy Vehicles’ as part of a quota system. China represented 47% of the global EV market in 2017 which is expected to rise to 55% in 2018. We continue to see strong lending demand for BYD Co which increased further last week as the share price surged.

Europe

European equity outlook concerns drive an increase in securities lending demand. Nyrster slumped up to 22%, the highest intraday drop in 2 and a half years, after ABN Amro published a note saying it had strongly understated the true debt level of Europe’s largest zinc producer, leading to a material overvaluation of its equity. In Sweden, Hennes & Mauritz is seen having a “more downbeat” sales and profit update in September, as stock clearance challenges persist, and there’s “only a modest” reduction in like-for-like pressures, Jefferies says in a note. Finally, Continental shares slumped the most in more than two years after the car-parts maker reduced its revenue forecast because of lower-than-expected sales in China and Europe and disappointing results in the division that makes rubber and plastics products.

Deatsche Euroshop announcement of cancellation of expansion fuels short interest. Deatsche Euroshop announced that they will not be expanding the Galeria Baltycka shopping centre in Gdansk. The stock fell over 4% upon the news and has had price targets lowered. Short interest continues to climb, up 2% this month to 7.8%.