05-Oct-2020: From Henry Jennings of Marcus Today (today):
A sub-optimal week last week and a sloppy end to the quarter and an equally sloppy start to October.
Mesoblast (MSB) was a symptom of the disappointment. It was all looking so good for MSB with approvals for RESTEMCELL – L for Acute Graph Versus Host Disease. The committee voted 9 to 1 to make MSB carry out more trials. There is a good Boardroom Media presentation from the CEO which is worth listening to for MSB fans and there are plenty out there.
The herd turned on Friday, sell first ask questions later, with a 37% fall. This is part of the new Robinhood retail traders. Plenty of chatter before the disappointment of Friday and plenty of bulls got caught on the hop. A very crowded trade.
I no longer hold MSB. I have followed it for some time and was my most ‘convicted’ holding at one point before selling out around 320c some time ago. It just became too volatile for me to recommend. It is hard to react and communicate in real-time through a newsletter that is daily. MSB and others like it just move too fast. If something happens during the day and it drops 30% suddenly, it is hard to change our minds and get that information out to members, so I steer clear.
For me, the exposure I have to MSB is through Thorney Tech (TEK) which has been a holder of MSB for some time.
- TEK's two biggest holdings are Z1P and MSB. TEK was knocking on the door of 40c recently, a price I was happy to take some profits at, just didn’t quite get there.
- TEK’s portfolio currently includes Yojee Ltd (YOJ), Brainchip Holdings (BRN) Life 360 (360), Nitro Software (NTO), Immugene (IMU) and Dubber Corp (DUB).
- Back to MSB and what to do from here. The company is heartened by the 9 to 1 vote. In the next 30 days, the company is hoping to get a Type A meeting with the FDA to fast track approval at the same time, as it gets the necessary trial underway.
- This is not game over, but the market has pushed reset. MSB looks interesting as it falls back to around 300c. This is where it bounced from last time we saw this extreme volatility. It was good to hear so many US-based research houses keen to ask questions at the briefing. Plenty of interest in the US.
I would expect to see a small bounce and then some selling to drift back in and maybe 300c tested again, before the punters start back up and focus on the 30-day timetable for a Type A meeting and the subsequent trials.
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For more of Henry Jennings, watch Ausbiz's "The Call" at 12pm each weekday - he's on at least once per fortnight and usually once per week, or check out Marcus Today.
I don't hold MSB or TEK, but I think TEK is looking interesting considering what they hold. As well as MSB, Z1P, YOJ, BRN, 360, NTO, IMU and DUB (all mentioned by HJ above), TEK also hold 10.86% of JAY (Jayride Group), 5.12% of DUG (DUG Technology Group), 18.25% of OVH (OneVue Holdings), and 8.83% of TNY (TinyBeans Group).
In addition to those listed companies - and others - they also hold positions in a number of unlisted companies, including some pre-IPO companies - you can read about two of those here (Cluey Learning and Pentanet).
In their Annual Report, on page 5 (the seventh page of the document), the discuss 5 of those pre-IPO investments.
At August 31st, TEK's before tax NTA was 38.7 cps (cents per share) (41.7 cps after tax) and their SP (share price) was 31 cps. They are trading today at around 33 to 34 cps, and we can assume their NTA took a hit during September and that the discount has seriously reduced (if not evaporated entirely). Of course, that depends on how large their exposure is to MSB which has dropped a lot.
DUB, DUG, OVH, YOJ and Z1P are all also down since August 31. NTO and TNY however are both actually up. BRN have been up the mountain (they went vertical to 75 cps in September) and fallen all the way back down again, and are currently trading just above their August 31 close of 31.5 cps, having apparently shaken out a number of day traders (who have likely moved on to something else now).
We'll know more when TEK release their September 30 NTA numbers - which they should do some time over the next week to 10 days.
TEK are on my watchlist. It looks like a good way to get managed exposure to a range of both large and small cap emerging tech stocks here in Australia.
