From the Securities Lending Trading Desk

In the US, ROKU is trading at roughly three times their IPO price while ARLO is half of what it was in August. Shares in Japan’s largest messaging platform company soared last week after the Nikkei newspaper reported a tie-up with Chinese tech giant Tencent Holdings. In Europe, Viceroy Research rocks another South African firm with a new report citing accounting inconsistencies.

Americas

We are seeing increased demand this week for Arlo Technologies Inc. (ARLO) as the share price trends lower. Arlo Technologies Inc., which was spun out of Netgear Inc. (NTGR), went public in August and the share price quickly rallied to a high of $23.08. However, the maker of home security cameras has been unable to sustain that valuation as doubts persist around its hardware-dependent business model. It has lost nearly half of its value since peaking shortly after IPOing. In contrast, Roku Inc, another designer and manufacturer of consumer electronic home devices, has diversified its business lines to include a platform which generates revenue through advertising and licensing. ROKU is trading at roughly three times their IPO price while ARLO is half of what it was in August. As directional demand has grown, we are pushing fee levels higher.

Jones Energy, Inc. (JONE) has been in focus as the share price has been trending even lower following the NYSE’s decision to delist the Class A Common Stock of JONE from the Exchange. The decision came as JONE has failed to meet the standard listing requirement to maintain “an average global market capitalization over a consecutive 30 trading day period of at least $15,000,000”. The oil and gas company has seen its share price fall from $10.74 back on 8/9 to $1.06 on 11/28. According to reports, it is likely the oil market will swing from a deficit to a surplus in the fourth quarter of 2018 and into 2019 should OPEC maintain current production, including U.S. waivers on Iran sanctions and growing production from Russia and Saudi Arabia. As concerns mount and JONE moves from the NYSE to OTC, demand has remained strong and fee levels are elevated.

Asia Pacific

Hong Kong-listed Global Brands Group announced the sale of its North American licensing business and reported a net loss for the first half of the year. The fashion firm, which was spun off from supply chain giant Li & Fung in 2014, said it will sell the US operation to Differential Brands group for US$1.38 billion in order to repay debt and lower working capital. Global Brands also announced a net loss of $284 million for the first half ended in September 2018, versus a net profit of $26 million for the same period last year. The company is beginning to feel the effects of the trade war and has been adjusting its operating model in light of the imposition of tariffs on China by shifting production to other countries in Asia. We have seen an increase in securities lending demand for Global Brands with its shares slumping by 17% following the announcement of its results.

Shares in Japan’s largest messaging platform company soared last week after the Nikkei newspaper reported a tie-up with Chinese tech giant Tencent Holdings. Line Corp, a subsidiary of South Korean internet search giant Naver Corporation, is reported to be partnering with Tencent to offer mobile payment services for small Japanese retailers looking to capitalize on the large influx of Chinese tourists into Japan. The partnership is expected to be launched in 2019 and will compete with rival offerings by Softbank Group and Yahoo Japan. However, some analysts remain skeptical on the tangible gains from this deal as Alibaba’s Alipay users are already able to use this service in Japan, which in and of itself has not been profitable for Alipay. We have seen long-term securities lending demand for Line Corp, which has seen its shares rally by over 30% since hitting a record low of 3,120 yen on 21st November this year.

Europe

Intu properties remains in the headlines and has strong demand following a second takeover collapse. Intu properties (INTU LN) dropped 39% late in the week as a much-anticipated takeover bid by Brookfield Property Group fell through. This marks the second failed deal after a merger with rival Hammerson failed earlier in the year. The CEO of Intu cited Brexit concerns as the main driver behind the deal collapse. Intu subsequently announced it would be cutting its dividend. Real Estate Investment Trusts (REITs) such as Intu, are often appealing to certain investors as they pay out large amounts of their recurring income as dividends. Short interest had decreased from highs of 37% to 10% following news of the potential deal, however, over the course of the last few weeks, it has increased to 12% as bets against the deal have increased. The stock is 55% down YTD and Intu’s problems seem set to continue in the short term as the company cuts its dividend and must manage increased pressure in the retail sector while finding a permanent CEO.

Viceroy Research rocks another South African firm with a new report citing accounting inconsistencies. This week it was the turn of NEPI Rockcastle (NRP SJ), who hold one of the largest real estate investment portfolios in Eastern Europe. Viceroy Research is a US based activist investor who seeks to uncover accounting irregularities and is famous for publishing damaging reports on South African firms Steinhoff and Capitec. The report issued this week brought into question earnings in NEPI’s Romanian subsidiaries where it believes it incurred a EUR 41 m loss in 2017, different from the EUR285m profit reported. Year to date the share price is down 47% and on Wednesday following the release of the news fell a further 16%. The share price later recovered towards the end of the week with NEPI defending its reports and accusing Viceroy of misunderstanding specific accounting rules and policies for Romania.