MSB trading, page-1506

Some points to note on the discussion regarding whether people will crack under the pressure and sell their MSB - I think it is more likely that the shorts will be forced buyers.

1. Despite all the emotion and pain you are feeling, MSB has actually been a good performer over the past 12 months - a year ago it was $1.40 and now it is $1.715, a rise of 22.5%. The ASX200 Index is only up 10.45% vs 1 year ago (plus dividends of around 4.5%).

2. It is trading above the 100 day and 200 day moving averages and I don't think there are a preponderance of "weak hands" out there. The bulk of buyers over the past year are in profit. The weak hands have already been cleared out and in February the share price tested and held the lows of November 2017 around $1.20. It is now 44% above the February low, so the real pressure is on the shorts, not those who are long

3. We are a long way from June 30, but most buyers this financial year would be in profit, and if the share price holds the current levels there won't be anything like the incentive of the past few years for tax loss selling in 2019.

4. The latest Oppenheimer research forecasts of $US1.65 for the MESO ADRs in FY2021 equates to $A0.458 per Aussie MSB share. Put that on a P/E of 30 and you get a share price of $13.75 per Aussie MSB share in 2021. Discount it back to today's price at 15% pa gives a current share price for MSB of $A9.00. Or discount it back at 10% pa gives a current share price for MSB of $A10.33. That is why the bulk of the brokers following the stock don't have a problem with a 12-month price target of $A4.00 to $A6.00.

5. I prefer to use a longer term DCF valuation, but I get similar figures.

6. You can get a wide range of valuations depending on your assumptions of market size, probability of success and discount rate, however most valuations are way above the current share price. SI helped us firm up some of this uncertainty in the quarterly conference call with some solid indications of revenue potential for each product candidate. Forecasts like this add a bit of certainty and help firm up the valuations.

7. Everyone knows this is a speculative stock until it can deliver consistent cash flows. The conference call also gave us more information on timing of cash flows and indicated a sustainably lower quarterly cash burn. All of this helps reduce uncertainty in valuations of the price.

8. Reduced uncertainty generally means a higher valuation via higher probability cash flows and a lower discount rate (as well as eventually lower funding costs, lower share price volatility and thus a lower weighted average cost of capital).

9. Given all of this, and the still very high short position relative to daily liquidity, it seems to me that the real pressure is on the shorts

10. I reiterate that MSB is still in development stage and is speculative. However the potential upside in the share price appears to be multiples of the downside. It is up to individual shareholders to assess their own risk appetite having seen the share price moves in this stock over the past several years - however the company is now in the best position it has ever been in with regard to progress in medical trials, potential partners and the overall cash position. I really don't see why long investors would be feeling any substantial pressure at this point.