Some more speculation on the Capital selling and the current...

Some more speculation on the Capital selling and the current buy/sell demand for MSB

In answer to why Capital may have sold so low:

I have covered some of this before, but here are a few more insights, which I think could explain Capital's moves and argue for the end of the selling pressure on MSB.

While supply/demand appears positive and long-term valuations are very supportive of a much higher share price, the next share price moves will depend on FDA approvals and possible partnering deals. The presentations in the US this week may cause a short term flurry, but we need solid progress on the technology (FDA approval/more good trial results) and the cash position (upfront payments) to make share price rises sustainable. Good news on either or both of these fronts would cause a sizeable rise in the share price.

I wouldn't be surprised if Capital had little choice in the selling or the price they received. One of their funds appears to have been given from late January until 14 March to exit its MSB/MESO position. Their main fund appears not to have sold any stock. At the time Capital may have been a reluctant seller, MSB's volume was extremely low and they would not have wanted to smash the price as it would have affected their main fund's valuation - so they appear to have slowly edged the stock out, and may have even used their prime broker to facilitate the exit. As soon as they finished selling, the share price bounced - that's how markets work.

It also appears that the 5 moves up and down in the net short register since Feb 5 are part of this selling - the moves are all very close to the 3.5m shares that went through the market as the S3 XT trade late on 14 March. The moves in the net short position look like they started with the recall of a short position on Feb 5 (-3.6m net short) so that Capital could sell this stock, then a new short position was created - probably within the accounts of the same prime broker +3.48m on Feb 6 and possibly for the original shorter, then 3 more transfers down 3.68m on Feb 7, up 3.65m on Mar 8 and finally down 3.68m on Mar 11. None of these moves appear to have elicited buying or selling through the ASX, the volumes just weren't big enough - so they may have been transfers between Capital, the brokers own accounts and the short sellers who were originally on the other side of this trade. The whole thing has probably now stopped with the S3 XT line of 3.5m being crossed and the net short position should now remain around 3.5m shares lower than when this all started.

If you look into the detail of Capital's substantial shareholder notices, you see that they had two accounts with their custodian banks account number 14 (large holder of MSB) and account number 35 (smaller holder of MSB).
Account number 14 doesn't appear to have sold any stock and account number 35 has sold all of its stock.

So account 35 has now finished selling - that's the main point - it has no stock left. Account 14 hasn't sold any.

Fund managers can't favour one account over another - they can't sell for one account and try to get a better price for another account. They must treat all clients equitably or risk being sued. However, that doesn't stop you selling for one account if it has had redemptions or something else has dramatically changed in the management of the two accounts.

That says to me that account number 35 has either had redemptions, been closed down, or for some other reason known only to the fund manager has been forced to sell all of its Mesoblast (shares and ADSs). Maybe the fund manager changed and the new one has transitioned out stocks (s)he doesn't like, maybe they radically changed their management style - but the simplest explanation is redemptions (remember a lot of tech funds were seeing redemptions at that time, after the S&P500 fell 20% between September and late December and the Nasdaq fell 23.5% - so redemptions came through in January and a lot of Americans sold in late December to get the tax losses for the end of their tax year).

The selling from Capital's account number 35 has been done over a number of months - with the first selling probably taking place between late January after Australia Day and up to the 7 Feb substantial shareholder notice. It is possible that Capital thought they would do the selling in a couple of tranches, and keep the first tranche just under 1% of the company so it didn't have to be reported. In the event it added up to just over 1% - possibly due to a miscalculation (which I covered in previous notes). The number of Australian MSB shares sold (not including ADSs) were identical in each tranche - 2,721,380 shares sold in bothe the 7 Feb and 14 March substantial notices - indicating that they were holding off selling it all in one go to try and get a better price and not disturb the market too much.

From early February volumes dried up dramatically, making it more difficult to sell the second tranche and it is possible the prime broker then got involved in facilitating the second tranche - the prime broker may have taken stock onto its principal book at some stage(s) and this may have also involved the 3.5m shares which moved on and off the net short register 5 times before the final crossing on 14 March.

I had earlier said that even though Capital reported the number of shares and ADSs affected only falling by 2.88m in the March 14 notice, there was an additional drop in the voting position of Capital of just under 6m shares, which may have been due to lending stock for shorting - however that 5.993m shares no longer appears in the holdings of account number 35, and no longer appears in the voting power, so I think we can assume it has somehow been sold or transferred to another owner. Even though the shares don't appear to have officially been sold, they have been taken into account in the substantial shareholder notice, dropping Capital's voting power to 6.17% of MSB; so if they are sold by Capital or someone else at a later date we probably won't see another substantial notice issued, they're already gone as far as Capital is concerned.

The 3.5m share movements in the short position probably make up part of this 6m drop in the voting stock and the big volume going through the market since last Thursday probably makes up the rest.

The bottom line is that it appears likely that Capital suffered some redemptions, a fund closure or a radical change in the management style of one (or a coherent group) of their funds - so called account 35. That selling was pressuring the share price since at least late January and has now finished. Capital's bigger funds - account 14 - have not sold any shares and are now sitting with a solid holding of 6.17% of MSB.

The low in the current run of MSB appears to have been set when the 3.5m S3XT was crossed at $1.15 - that indicates to me the seller capitulated to get rid of the last of their line and that then set the stage for the buyer to buy more and push the price higher.

Discussing this situation with other holders who have short term trading positions as well as long term positions raises the question of how far this run will go. It is actually small compared to the big runs in Feb and Sep 2018 - they were both up close to 90c. A similar move would take the current move to $2.05-$2.10. Volumes are still high at the moment, large buyers are still very active and there may have been some short covering. The philosophy of "let your profits run" seems to be appropriate to the traders right now and the long-term guys are looking for multiples of the current share price. Even if there's a correction, it may be brief as the BLA filing with the FDA next month will probably provide a bit of excitement and a bit of a speculative rise in the share price - that could even be part of why the big buyers are entering the stock already.