This move is still just pennies! @Armyne and @Celestial There...

This move is still just pennies!

@Armyne and @Celestial

There are a few new developments - all positive!

I have run through some of the Valuation upside in MSB in the past and indicated the very heavy discounting that analysts perform - which I believe is a breach of the Consistency Principle in arriving at an NPV (mainly because they include very high discount rates to take risk into account and then they also hit the valuation with probability discounts - finance textbooks will tell you to do one or the other, but not both).

Here's a summary of the latest valuation from Jason Kolbert at DawsonJames:



Note that DJ choose a very conservative 30% discount rate and a P/E of 10x to get a $US13.93 NPV of the MESO share price in 2030. Note also that means the actual price in 2030 would be $US192 ($A55.65 per MSB share) assuming 30% pa growth rate, and if that is 10x earnings, then earnings at that time would be $US19.20 per ADR.

I think this is a punishing level of discounting
And a more appropriate P/E for MSB at that time would be 25x and discount rate would be 10%. If you look up those levels on the DJ table, you get an NPV of $US185 per MESO share (or $US53.60 per MSB share) that's what it'd be worth TODAY!!! The future value in 2030 at a P/E of 25 would be $US480 or $A139 (you can verify that those future values are the EPS above multiplied by 25).

You can plug in your own discount rate and P/E into the table above - however, in today's market, I think my choices are still a little conservative- note that after decades of growth, CSL is currently on a P/E of 37.8 (based on last 12 months earnings). Going up to CSL's P/E would increase the valuation by another 50%!

Probability discounts are huge

Like most analysts, Jason Kolbert only includes a probability of success of 25% for heart and 30% for back pain.
If these products come through with trials that mirror previous trials, analysts will very likely increase their valuations and reduce the probability discounts.

Kolbert's peak sales for heart are $US9.6 billion (US and EU, including LVAD), but peak sales for Back Pain are only $US1 billion (US alone - despite the agreement with Grunenthal, the Sum of the Parts Valuation doesn't include EU back pain - so there's more upside from that). These peak sales figures differ dramatically from those of Edison which I reported last week - and show just how much uncertainty there is in valuing MSB.





Downside is limited

For those worried about trial uncertainty until results are released for Back Pain and Heart Failure, Jason Kolbert also says "GvHD alone, in our opinion, supports the current valuation of the company, but that's just the tip of the iceberg".

Shorts are becoming more active

This week, I note the amount of stock available for shorting has risen to 14m shares, then saw a drawdown to 12.6m, indicating someone may have shorted 1.4m.

That was probably the ammunition they were using to keep the price down at $2.30.
That attempt failed, and as the shorting appeared to back off, the share price exploded up more than 20c. Maybe they were even covering some of those shorts this morning. The figures I use come direct from brokers and aren't generally able to be looked up. The official shorting stats are useless at present, jumping up and down every day by far more than the number of shares going through the market.

Bottom line
Obviously after such a big price run, there's a temptation to take some profits, but...

"Why sell for a few pennies of upside when there are dollars to go!"

This is shown by the two latest research reports from Edison and DawsonJames.

Downside also seems to be limited - and the current share price can be justified from GvHD prospects alone.

Upside is well above analysts' price targets if you use more market oriented P/E ratios and discount rates - the DawsonJames report can easily be shown to support a share price well above my "stretch" target of $A20 per MSB share.

Shorts are getting smashed, and even though the interest rate to borrow to short has fallen from 18% to 10% and there are over 12m shares available to short, the shorts are reluctant to borrow and short more, even at current high prices - sure they've borrowed 1.4million - but that's peanuts.