MSB Trading - 2019, page-4134

I love your enthusiasm, however (on my calculations) we now need the price to get to above $2.80 almost immediately and stay there until the end of February to expect ASX200 inclusion. The longer it stays below $2.80, the more it has to go up.

That is possible if a major partnering deal gets done quickly, however, with Xmas and January holidays looming, I wouldn't bet the house on it.
If the deal isnt done til late January, the the price would probably have to average close to $4 over the month of Feb.

I'm not ruling it out - but I think March is unlikely.

Far more likely now is June rebalance of ASX200. We will need to average a bit over $2.20, depending on what other stocks move up and down (i.e. How many currently in the index drop below number 221 to get kicked out and how many new stocks come in with market cap above number 179 to come in).

Remember that MSB have an 85% IWF, so they only count 85% of the market cap.

In the ASX200 December rebalance only 2 stocks enterred the index (and 2 left) and you needed market cap to average $1,020m for 6 months - MSB would therefore need $1,200m or $A2.23 share price average for 6 months.

$A2.23 was the high after the Grunenthal deal and is pretty easy to attain if the trial results are looking positive. If heart trial results have some positive commentary by March (possible according to @otherperspective) and the price averages say $2.00 between end Nov and end Feb, then an average of $2.50 between end Feb and end May should be enough to make the June rebalance.

If the company had not done the big placement and Capital had not sold out, we had a reasonably good chance of entering the index in the March rebalance, particularly if the instos who stumped up $A120m were forced to buy on market - the price would be over $2.50 by now AND the shorts would've had to cover!

That is definitely the possibility going forward with another partnering deal close - AS LONG AS MSB DOESN'T RAISE MORE EQUITY, and as long as other big investors don't sell out!

A big partnering deal at the end of Feb would not make any difference to the March rebalance as the numbers cut off at the end of Feb. So a partnering deal has to be big and to happen before Feb to make index inclusion in March feasible.

You can adjust these numbers up or down according to what other stocks around MSB's market cap are doing - or just use Index moves as a rough guess. It's way too early to say definitively how the June rebalance will go.

I'm just trying to give you some rough numbers to work with, you can obviously change some assumptions and I don't want to come across as negative, just realistic.

It may well average much more than $2 between end Nov and end Feb, but the clock is already ticking, and 21% of the 61 trading days til the end of Feb are already gone at an average price of $1.885. The next 48 trading days til the end of Feb are obviously crucial to ASX200 inclusion.

There's only one way to enter the ASX200 by March, and that's a big partnering deal very soon.

There are lots of paths the share price can take to enter the ASX200 by June - that's why it's more likely. E.g. If MSB hit $2.35 tomorrow, we'd have an average of $2.26 by end Feb and if we could hold that we'd probably enter the index by June. OR it could stay around $2 til end Feb then announce good Heart trial results or a partnering deal and move up to $2.50 and hold that til the end of May. Or other combinations are possible - and it also depends on how other stocks move.

Other Topical Issues:
1. MESO price - no correlation to Aussie price

2. Who's buying and selling looks good for price

3. Shorts already burning, covering and fearing
more. Shorting more dangerous than longing

4. Subtle messages in DMC announcement

1. There's never been a correlation between the overnight US price and the Aussie price the next day. I've done the statistics on that in a couple of previous notes. The US market is a much thinner market- so if someone decides they need stock quickly (i.e. To cover a short) they have to pay a big premium. This has happened before and there's been absolutely no carry over into the Aussie price. The only exception would be if MSB decided to release market sensitive news during US trading time - but they usually do it after US close and before Aussie open. So, have a good night's sleep and don't look at it!

2. Sustained Shorting activity is Australia is not evident apart from 2-3m share positions bouncing around. I would guess that the bulk of recent selling is some profit taking from long term holders who have delayed selling waiting for the big announcements and some flipping by the instos who bought Capital's line at $1.711.

It's been a great year for the MSB price - up from $1.015 last Xmas Eve - in the top quartile of ASX price rises. So some profit taking is to be expected. Share prices have to soak up inevitable profit taking - that's why they don't move up in a straight line. Profit taking doesn't indicate anything fundamental about the valuation of the company - and, until new info comes out, it always ends.

There has been a lot of speculation around the market that most of the Capital selling of 27MHz shares went to one player (Phil King and Regal were mentioned) but also that some went to instos from the placement. I don't know - but it would be positive for the price if Phil King has gone positive, and would leave a lot of pent up buying from the instos who missed out.
If guys like Phil have flipped from short to long, maybe we'll even see people like Hottuna, Madamswer and aatisket go grudgingly positive!
(Or at least continue with their radio silence!).

3. Short positions aren't like long positions!!!
@Armyne - in response to the comment that "shorts are too proud to cut their losses, doubling down as their positions go out of favour" - it's worth noting that people who were short at $1.01 last Xmas Eve had a $ position twice as big this morning- without doing anything!

Long positions become smaller if you get them wrong - and you can double down to average your price lower.

However short positions which go wrong start growing - they become like an increasing population of zombies looking for brains!! Say you were short 1m MSB last year at $1.01, you now have around a $2m position. To average UP your price to $1.50, you have to sell another 1m shares at $2. Now you are short $4m of stock, with a loss of $1m. A 10% increase in the share price from $2 costs you $400,000 in extra losses.

If you started long $2m of stock at $2, you only have to buy $1m at $1 to double down, for a total outlay of $3m at an average price of $1.50, and your loss is still $1m, but your holding is only worth $2m. A 10% price fall from here only costs $200,000.

See how much more pressure there is on the shorts when a position goes wrong? Doubling UP is a dangerous sport - and is particularly gutting when you cop a margin call from your friendly stock lender.

@ddwn "torch those shorts" - they've been on fire since Grunenthal - it just keeps getting worse for them - that's why their total net short position in number of shares has halved this year - however their $ position is still very high!

4. DMC Futility analysis is highly important- note that they mentioned "components of the trial's primary and secondary endpoints" - that says to me that all the important endpoints have been considered and the trial should "continue as planned". It's important because it implies they are effective in all endpoints.

Also important is that this is the "10th
and final scheduled meeting" - there's no indication that any further meetings may be necessary.

Also important is the language went back to "initiated submission of a rolling BLA to the FDA" for Graft v Host Disease. That says to me that a proper announcement will come when it is completed, which probably isn't far away given the mistake they made in the previous announcement (i.e. They are already internally preparing releases saying that the submission is complete).

Bottom Line

Everything going to plan.

MSB becoming more conservative on announcing timing of announcements- I think that's a very good thing as there is too much speculation re "due dates" for a totally new technology where the FDA is obviously being very cautious. The right answer is "nobody really knows, but we'll give you our best guess and then add some extra time to be conservative" - that's the model they appear to have moved to.

Still some big announcements to come in next few days (BLA final submission) and months Heart Trial more colour possible en Feb, CLBP trial second quarter 2020, more partnering deals any time between now and June 2020.

Index inclusion? Outside change to enter ASX200 if they announce a big deal in January and stick a big share price rise (towards $4, depending on when it happens before end Feb).
Much more likely to go into ASX200 in June rebalance - and that should support the share price right thru til late June!