Santa gets MSB up through $2 on big volume - caps a brilliant year, more to come in 2020!
There has been strong buying of MSB into Christmas, both price and volume. Today's high has been $2.05 (the same as last Friday) - although the sellers seem to be readying themselves to defend that level, and then maybe try to force it lower like they did last week. We'll see if they are successful over the next few low volume trading days until 31 Dec.
Last Friday (Dec 20) the VWAP on MSB was $A2.011, with a high on the day of $A2.05. Volume on Friday was a strong 2.75m (which, coincidentally was the daily average volume last week) - ie 13.77m shares traded in Australia last week. That compares with daily trading volumes of 942,000 since Xmas Eve 2018 up until Capital sold out (or 1.11m daily average including the period since Capital sold) - so something big was going on in volumes last week - nearly 3x the daily average of the 12 months up until Capital sold out!
There have actually been 27.2m MSB shares traded in Australia and the equivalent of 4m shares in the US since 4 December - and that's more than Capital's entire line of 27m shares including ADRs - so it looks quite possible that some instos who may have missed out on buying Capital's line of stock on Dec 3rd have topped up since then.
The past week has been the highest volume "normal trading" week of the year excluding mid-March when Capital sold its last big line of stock and mid-September when the Grünethal announcement and capital raising significantly increasing trading activity.
At today's high of $2.05, that's a 13.25% rise since $1.81 at the end of November, and a rise of nearly 20% since Capital sold on 3rd December for $A1.711.
That's a pretty good Santa rally considering the market had to absorb Capital's 27m share and ADR holding and some subsequent flipping and profit taking.
Shorts and manipulators fighting a losing battle
There was some obvious manipulation on Thursday and Friday last week, with heavy selling being loaded late to try to hold the price below $A2.00 for the close and final match. On Thursday 19 Dec, over 500,000 of selling was loaded in at $2, then another 80,000 or so at each price of $2.01, $2.02 and $2.03, and the match - most of that selling disappeared before trading reopened on Friday morning. Then there was another attempt to hold it down in Friday's closing match, with more big selling on the close, but the buyers stepped up and it closed again at $2.00.
Maybe those who seem to be trying to keep the price down are shorts who are burning - they are stuck in an illiquid stock which has been rising strongly through the year - they don't appear to want to bite the bullet and significantly increase their short while there is so much buying around at present, but maybe they'll have another try when instos close for the summer break and when volumes are usually low. I think their actions indicate they'll keep trying to attack at $2 (or whatever level they feel they can defend).
The manipulators load in large amounts of selling late in the day, slightly out of the market, or at a level where the majority of their selling is unlikely to be hit -often at prices which are the high for the day and above. They do this to make the price look heavy and if they do it when volumes are low they may not have to commit to much more short exposure. They are usually not there the following morning - ie the "selling" is pulled. It's a challenging and dangerous game, and with the net short position falling from over 8.35% of the company's issued shares earlier this year to only 4.9% now, you can see that most have made losses as the share price rose aggressively in the past year and that nearly half have given up (at least for the time being). At time of writing (3:05pm Monday), the share price is $2.025 (up from $2) and the selling has been building up at the day's high of at $2.05 (105,500 on offer in 19 lines) - let's see what they try to do on the close today and tomorrow, and whether the buyers step up again!
You can see the reduction in the net short position over the past 12 months below:
The battle of $2 reminds me of some of the other "technical" levels through 2019 - with $1.50 being a key barrier which prevailed in May through September - finally breaking with a spectacular rise up to $A2.23 over 5 trading days after the Grunenfeld partnering deal was announced. A similar sized deal could be announced at any time for US back pain or chronic heart failure in either the US or Europe - any of which should cause a similar rise in the share price. There are also the possibility of further deals in other big markets like Japan and China.
At $2.05 high today, MSB up 98% in past 12 months - ranks number 33 in ASX300
That's a spectacular price rise, and a real acknowledgement of the progress MSB has made in technology, trials, lodgement progress of the BLA for aGvHD with the FDA, prudent management of cash burn and the comfortable level of cash and stability of the balance sheet. They have also been building inventory, building sales and marketing staff, strengthened the board with relevant US experience and engaged with Lonza for the new next-generation production facility. On top of that, the relatively unexpected partnering deal with Grunenthal (Europe's second biggest pain management company) gave Mesoblast, the management and the technology another shot of credibility.
A very exciting year of achievements. A year ago, people were complaining about the poor design
(from MSB's perpective)
of the NIH's LVAD trial, causing doubts to emerge about the technology AND we were in the middle of a 20% US stockmarket slump due to Fed tightening and the first big shots in Trump's trade war. Those events saw the MSB price fall as low as $1.015 (with some on HC calling the price to fall to 75c) - so, like most other stocks in the global markets, a good deal of this year's rise is also down to a bounce from an oversold low.
Just for the record, I'm bearish on global stockmarkets at present and I doubt that very high PE ratios can be sustained if global bond rates continue to rise and if the problems evident in the US Repo market in September re-emerge. However, the problem for MSB last year was that the fall in global markets hit just after the collapse in confidence after the NIH trial was misreported and as the net short position in MSB started to skyrocket up to close to a record high, hitting a little over 8% (possibly as someone was speculating Capital would sell their first big tranche of stock).
I don't think a similar 20% US stock market fall would cause nearly as much damage to the MSB share price now that we see much stronger institutional buying support - taking up $US50m of stock in the placement and then buying Capital's remaining 27m shares and still showing strong buying support in the past week. Grunenthal's support has given the technology much more credibility, and has also bolstered the market's perception of management. Instos are now much more likely to buy any dips in the share price than they were this time last year when there was doubt about the technology and management.
If MSB signs another deal with a big pharma or biotech, especially for the US market, a fall in global stockmarkets shouldn't cause anything like the problem of last year. There will always be some profit taking and effects of the overall health of markets, but MSB is moving into much more stable price movement environment, with short sharp rises generally followed by a pullback and then consolidation of 1-3 months. The year has seen a progression of higher highs and higher lows. We have had 2 big rises of 40c each and one rise of 80c post the grunenthal deal. The pullbacks have all been in proportion to the size of the preceeding rise (and generally close to the traditional Fibonacci retracement level - which says to me they are normal human profit-taking behaviour and not based on unexpected bad news:
Keeping things in perspective
While I remain positive on MSB, there's always the possibility of being wrong in markets. It's very easy for people to justify a position based on the immediately preceding share price performance and getting caught up in the hype - positive or negative. I hope not to fall into that easy trap, but to always try to judge the valuation of a company by its future cash flows and comparisons with similar stocks.
I'd note the following from @Sector on 23 July when I was trying to explain why I didn't see a read through into the MSB share price from what was going on at CYP. I was concerned that people would think that if CYP could be taken over at $2 then that might justify a low-ball bid for MSB - and I pointed out why I thought MSB was worth significantly more than CYP.
Sector replied with the following, which is a classic case of arguing why one stock is superior to another based on the most recent share price move:
"Reems of writing for what...nonsense
"It hopes to start 3 lots of phase 2 trials by the end of this year, but it clearly doesn't have the money to fund this as well as its normal quarterly cash burn. Their potential partner Fuji Film has so far failed to take up their option, which they appear to have been prepared to let lapse before CYP extended it."....
I can't read even past this due to your total ignorance
You best stick to MSB and try not to understand the Cynata business model, as it just makes your whole post worthless.
As I said before, all I need is the 1, 3 and 5 year charts to know I backed the right horse."
Well, he certainly owned me! But the logic of looking backwards at 1, 3 and 5 year charts to know you backed the right horse doesn't help one iota in deciding whether it is a good price NOW and whether you should stay invested.
At the time of posting,on 23 July, MSB was $A1.49 and CYP was $A1.79. Had you sold 100,000 CYP then and put the $179,000 into MSB, your 120,134 MSB shares would now be worth $245,073 (at current price of $2.04) - and that's more than 2.35x the current value of holding CYP through to today ($103,500 at current price $1.035). But so, what? You pays your money and you takes your chances - I know there are people in both stocks and I'm not interested in providing a running commentary re CYP's valuation - I simply wanted to point out it is in a completely different situation to MSB and that MSB shareholders shouldn't use the valuation of CYP as a guide to MSB's long term value.
So, rather than sitting back and saying "weren't we clever to have owned MSB over the past year - the share price rise proves we are right", we should constantly ask the relevant questions such as "what could go wrong; what is the risk of downside disappointment; what could go right; what is the valuation today based on reasonable expectations of cash flows in the future?" Many on the HC forums ask these questions, and I must say, the detailed research and answers from those more knowledgeable than me give me incredible insights into MSB, the technology and the process to US drug approval.
Where to from here?
I have shown several ways of valuing MSB over the past year - and showed a wide range of possibilities depending on your assumptions - anything from $1.50 if trials fail up to $5 on fairly harshly discounted NPV assumptions , to $10 if more partnering deals like Grunenfeld occur, to more fanciful levels of $20 or more if everything goes right and we look further out into the future (let's leave that one aside at the moment as the numbers are really rubbery).
I looked at independent analyst valuations, NPVs of future cash flows, comparisons with similar stocks, and P/E ratios based on earnings in 5-7 years time discounted back to today's present value. I also did comparisons of where MSB traded in the past after the Cephalon deal in late 2010, with the share price running up to $A9.95 in 2011 - the similarities and differences and the fact that there are now twice as many shares on issue, but that the phase 3 clinical trials are now within a few months of being finished and that MSB only sold heart and Central Nervous System to Cephalon back in 2010. As an aside, I find it amazing MSB got the rights to that technology back for free from TEVA, justifying the oft made "boneheads" assertion!
There are many valuation methods and the underlying assumptions give wildly differing valuations. I showed that most of the analyst valuations were VERY conservative and why. Analysts never want to stray too far from the current share price in doing a valuation of a company, so you can't expect them to risk their reputation and jobs making huge calls on the MSB share valuation - in fact it is pretty amazing to have seen valuations of $5 or more (Bell Potter now at $5.10 and Cantor Fitzgerald in the US at $US23 per MESO ADR, or $A6.67 per MSB share) when the share price has traded between $A1.40 and $A2.20 for most of the past 6 months.
The following graph shows the consensus of US analysts for MESO ADRS (divide by 3.45 to get $A price per share at current exchange rate of US69c). The consensus of $US12.83 or $A3.71 is 80% above the current share price:
Dawson James in the US is the most recent analyst (19 Dec 2019) to initiate coverage on MESO, and their 12-month price target is $US14 (or $A4.06 per MSB share).
Even though, in retrospect, the analysts' 12-month price targets have been too high, I still use them as a guide as to what is achievable - simply because when I go through them I can see there is still huge upside from relaxing the high probability discounts and dropping the NPV discount rate closer to what a US pharma would use. I've also showed how many of the analysts exclude products and markets where MSB is likely to be successful in the near term, just to keep the valuation down to "reasonable" levels. I'm sure the analysts have plenty of room to increase these valuations as the share price rises - they just have to make some minor changes to their assumptions.
So, there are some targets for the medium to longer term. In the near term, we can expect MSB will continue to move in a similar fashion to the pattern of the past 12 months. That should be spurred by the higher volumes which continued right up to Christmas, by obvious strong institutional interest around $2, by announcements of trial results, BLA filing and potential further partnering deals over the next week to 6 months.
If the price continues its pattern of the past year, a 40c rise now from the consolidation level around $A1.80 would take us back to around $A2.20, which is where the share price traded after the Grunenfeld partnering deal. The share placement and sale of Capital's substantial shareholding both hit the share price, as well as some natural profit taking. Those factors are now clearly behind us and the price can bounce back to where it was previously - that's not a big ask. The bigger question is "what is the next big move?"
The market is expecting the imminent announcement of the final lodgement of the BLA for aGvHD with the US FDA. Of itself, I don't expect that to move the price significantly unless MSB also releases some positive guidance regarding the time frame to process the BLA based on any discussions they may have had with the FDA over the months leading up to the final lodgement (NB I don't have any special knowledge of this, and there may not be much MSB can say at this point). A really positive announcement, with some positive FDA comments would add extra credibility and probably lift the price back to where it was in October 2018 ($A2.40-2.50) just before the NIH trial hurt the company's credibility. An example may be something like the FDA indicating that the final decision could take 3 months, not 6 - however I'm not expecting them to do this. There could be more news on this front in a month or so.
If you believe the various share price estimates from the analysts covering this stock, there will have to be fairly steady price appreciation from this point to meet their 12-month price targets. You can legitimately argue that their targets were too high a year ago, yet the share price has almost doubled in that time - and once a share price has spent a long time in a bottoming process then starts to gain upward momentum it can go much further and can be very hard to stop (multiple examples over the years, but CSL is an inspiration to many on HC!).
For Bell Potter's 12-month target of $5.10, that implies a compound rise of 26.4% every 3 months - that would get us above $A2.50 at the end of March, and up to $A3.20 by the end of June before hitting the $A5.10 in 12 months time. These are not my predictions, they are just to show a possible set of prices to meet the Bell Potter prediction, assuming the price moves in a steady rise.
I know there are many knockers out there who will say Bell Potter were wrong a year ago, so why should they be right now?
To that, I say it is just as easy to knock the doomsayers, and it's all a rather pointless exercise - what matters is the price in the future, not where someone bought or sold in the past, or what an analyst or doomsayer predicted in the past (eg I remember @SamsonMach2 at this time last year (23 Dec at 9:26am) who had a short term target price of only 75c...
"November 8th $2.21 per share December 21st $1.04 per share Not even my Kia stinger would decline that badly in 5 years let alone 43 days( 31 actual trading days) wow 1month precisely!!
A decline like this surely makes holders question is it time to sell before it hits 75 cents which is my target. The market has spoken clearly here, it can only get worse as the economy crumbles daily! Just playing devils advocate here for the new holders who have been sucked in by various uprampers!
Maybe it turns around but the charts suggests much lower gaps are still to be hit. All imo and this is just me being a realist here, the SP decline is very concerning surely to all!"
What a difference 12 months makes! It looks like the "uprampers" were right! It's been a huge year for MSB, moving from a position where most instos wouldn't touch it to a position now where instos are snapping up placements of 7.5% and share selldowns of 5% of the company in a day! And remember that the 7.5% $A75m share placement was done when the US Dow Jones Industrial Index was down over 1,000 points in early October and MSB was closed - that's amazing support from the instos at a tense time. The credibility of the technology was boosted immeasurably by the Grunenfeld deal, the major phase 3 trials are close to completion and the balance sheet has two years of cash (and probably more depending on if and when aGvHD sales commence in the US).
Even if the remaining shorters manage to hold down the share price to $2 or less by year end, it'll be a pyrrhic victory - they'll just ending up losing more in the longer term with a bigger short position, and it'll all have to be bought back one day, causing even bigger gains in the share price later - ie they'll be competing with the instos who have clearly been adding to their holdings around $2.
I've not said this before, but I think the progress of the company warrants it - once this $2 barrier clearly breaks, we aren't likely to see a "1" in front of the share price again - in the future, I'm sure people will be amazed that you could buy so cheaply (for around $US750 million) - a global biotech with multiple products, a strong balance sheet and one product which had met its FDA phase 3 endpoint and two other major products right at the end of their phase 3 trials, with major partnering deals and product licensees already in place in Europe, Japan, China and Latin America - and the US likely to partner within the next 6 months.
Merry Christmas to all!
(20min delay)
