From the Securities Lending Trading Desk

In the US, Redfin’s stock price has been declining in spurts over the past year as the share price is now half of what it was at the start of 2018. The auto sector is facing its first decline in more than two decades on a slowdown in the Chinese economy and as the effects of the trade war are now starting to take effect. In Europe, Aryzta, a popular lending name, had its shares suspended this week following a vote on a rights offering to ensure the bakery’s survival.

Americas

Short demand for Redfin has increased ahead of its Q3 earnings report and anticipated earnings shortfall. Redfin’s stock price has been declining in spurts over the past year as the share price is now half of what it was at the start of 2018. The stock price for the web-based real estate services provider dropped 35% at the end of January and another 29% in August. Despite an expected uptick in revenue YoY, RDFN’s earnings are expected to come in well below estimates due to slowing transaction growth, a rocky macroeconomic environment, and a decline in real estate demand across major markets. In fact, Redfin’s CEO Glen Kelman forecast the disappointing Q3 results back in August as he reported waning real estate interest, specifically in major US West Coast markets. Lending levels have spiked sharply as the upcoming call sparks renewed short interest.

Camping World Holdings Inc, a consistent disappointment for investors this year, has recently shown signs of life amid positive industry reports. Camping World, a leading retailer of recreational vehicles, went public at $22/share two years ago and quickly doubled over the span of a year. Since that time, CWH has plummeted throughout 2018, losing all of its 2017 gains and most recently, has fallen below its IPO price within the last week. Up until this point, it has been a top lending name for short investors for the better part of the last two quarters. Recently however, after a Global Market Insights report was published which anticipated a 6% compound annual growth rate in the recreational vehicle market over the next 5 years, CWH has seen a jump in value. Similar increases in competitors, LCII and FOXF, have buoyed the positive sentiment in the industry. The significant volatility in this name has kept it in focus on the lending desk.

Asia Pacific

China’s automotive industry received a timely boost last week on speculation that the government is considering a tax cut to revive the flagging sector. Bloomberg News reported that Chinese authorities are considering, but have not confirmed, halving the tax on car purchases to 5 per cent in an effort to reinvigorate an industry that is key to their overall economic growth. The auto sector is facing its first decline in more than two decades on a slowdown in the Chinese economy and as the effects of the trade war are now starting to take effect. We have seen long term securities lending demand for several firms in the sector, particularly Great Wall Motor and Zhongsheng Group, which saw its shares rally on the news.

Shares in Australian-listed Corporate Travel Management tumbled the most on record last week after a negative report was issued by a prominent short-seller. VGI Partners said it significantly increased its short position in the firm over a number of “red flags” largely focused on concerns around the company misrepresenting earnings and accounting anomalies. However, these allegations were refuted by Corporate Travel who countered that the claims made by VGI were not supported by facts and have requested VGI to correct or withdraw many of the claims. We have seen an increase in securities lending demand for Corporate Travel, which saw its shares decline by nearly 25% last week.

Europe

Rights issues dominate the week as Restaurant Group (RTN LN) and Aryzta (ARYN SW) announce capital raising. News that the Restaurant Group was planning a £559M takeover of the Wagamama chain was met with hesitation on Monday as a proposed £315M rights issue led to potential worries of increased debt, market dilution and a cut to the planned dividend from 17p to 10p. Some analysts believe that shareholders may even vote to prevent the deal. The share price dropped as much as 25% following news of the takeover bid and borrower demand has been high. Aryzta, a popular lending name, had its shares suspended this week following a vote on a rights offering to ensure the bakery’s survival. The rights offering, which was approved by 53% of shareholders, offers new shares at 1 CHF per share, a dilution of more than 80% of stock value at the time. Upon lifting of the suspension, shares dropped 23% to all-time lows. Short Interest remains high at 18.5%.

UK earnings continue to disappoint for some companies as Reckitt and Bentley sales underperform. Reckitt Benckiser (RB/ LN) shares fell 5.4% after the household and toiletry manufacturer reported a £70m reduction in sales following technical engineering issues at one of its main factories. Analysts highlighted that the latest development reinforced a need for the company to reinvest in its operations. This is not the first time that Reckitt has suffered operational issues following prior cyber-attacks and failed product launches. Finally, Bentley, a subsidiary of Volkswagen, reported a EUR 137M loss citing falling sales and delayed model launches as the reason. At present, Volkswagen is down 11.45% YTD and as a group has reported an 18% decrease in profits YTD. SI has been steadily increasing and is currently at 3.13%.