From the Securities Lending Trading Desk

In the US, Ubiquiti Networks remains one of our top lending names as it met consensus estimates for EPS after posting strong earnings last week. Two of Australia’s largest telecommunications firms, Vodafone Hutchison Australia and TPG Telecom, have agreed to merge together to create the nation’s third largest group in the sector. Securities lending demand has remained robust in Europe for Hennes and Mauritz as weak third quarter results were posted.

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

Transenterix Inc. has seen an easing of lending fees as the robotic medical device company continues to surge in stock price. Following the FDA’s approval of its Senhance robotic surgery instrument back in October 2017, TRXC’s share price rose 174% in 4 days making it a prime target for shorts expecting a price regression. Add to that its addition to the Russell 3000 index and relatively small float, and lending fees skyrocketed over the beginning of the summer. Since that time however, TRXC has consistently performed well with multiple institutional investors increasing their long positions with corresponding short positions decreasing in turn. Multiple investment research firms have also moved TRXC from ‘sell’ to ‘hold’ and ‘buy’. Despite the fee drop, Transenterix remains our top earning name in the US for the time being.

Ubiquiti Networks met consensus estimates for EPS after posting strong earnings last week. Coupled with favorable recent media sentiment and a rising stock price, we have seen UBNT’s fee levels gradually ease. UBNT posted $1.01 EPS this year vs. $0.75 EPS over the same period last year. Additionally, they have declared a quarterly dividend to be paid out in September. The stock price has risen 22% since early May and 11% since early August. In the face of this recent uptick in UBNT sentiment, it still remains one of our top lending names.

Asia Pacific

Two of Australia’s largest telecommunications firms have agreed to merge together to create the nation’s third largest group in the sector. Vodafone Hutchison Australia and TPG Telecom agreed to a A$15 billion ($11 billion) deal that will combine Vodafone’s large mobile network with TPG’s extensive fibre optics network. The deal is expected to provide the combined entity with significant capacity to take on its larger rivals Optus and Telstra Corp, particularly in terms of investment in new technology and innovative products. We have seen an increase in securities lending demand for TPG Telecom in recent weeks whose share price has soared by nearly 60% since the beginning of August.

Gaming laptop and hardware maker Razer Inc. fell in Hong Kong trading after announcing a net loss. The company expects revenue growth to accelerate in the second half as it invests in areas from phones to online payments. Razer posted a net loss of $56.3 million in the first six months of the year due to large investments in new businesses such as the digital wallet service Razer Pay. Revenue jumped 38%. We saw lending interest following the earnings guidance.

Europe

Securities lending demand has been revived for MTN Group Ltd after the price plunges. The Nigerian government has demanded $8.1m to be returned over accusations of illegally taking money out of Nigeria. The country’s central bank ordered Africa’s largest wireless carrier to return $8.1 billion it says was repatriated improperly over eight years through 2015. The decision caught the company and its shareholders off guard and the shares plunged the most in 20 years to their lowest level since 2009. Short interest as a percentage of free float has moved up to 11.4% up from 7.2%.

Weak 3rd quarter results were posted for Hennes and Mauritz. Securities lending demand has remained robust for the Swedish clothes retailer. The share price dropped 4.8% as Citi and Goldman cut estimates and maintain sell rating. Short interest has been steadily rising ahead of the 3rd quarter results, now to be about 21.9% of the free float.