US equities little changed despite huge consumer confidence miss, Mesoblast continues to soften, ASX futures up 23 points

While annualised US GDP growth came in as expected at 2.1%, November consumer confidence missed the mark, coming in at 90.4 versus expectations of 99.5 - that's a significant contraction. Concern about job security and income levels seems to weigh on the minds of those who took the survey, but the drop seems to have been shrugged off as anomalous and thus major US markets finished marginally higher after having been down as much as 1%, in the case of the NASDAQ.

Rather than focus on the economic data reports themselves, however, let's analyse the market's response. For the market to cherry pick the good out of a consumer read like this reflects a sense of optimism and this spilled over into certain commodities as well: Brent and WTI crude rose 2%+ while copper popped higher by US$4.60 or 2.28%. No such luck for iron ore, with the benchmark price falling 1.92% to US$43.89. 

This morning I've decided to chat a bit about a stock that, while we've never recommended it and probably never will, has attracted a lot of attention recently due to a disastrous US listing. Prior to listing its American Depository Receipts (ADRs) on the NASDAQ at the beginning of last week, I'm sure Mesoblast (MSB) was excited about the opportunity to explore new funding channels to keep its research and development budget well-fed. Unfortunately, the exact opposite has happened: a disastrous listing in the US now has every MSB shareholder wondering whether the stock should be entirely re-rated and whether future funding initiatives might flop just as hard. 

After settling for a listing price of US$8 (MSB was looking for US$12 initially), the new ADRs--listed as MESO on the NASDAQ--sank as low as US$5.65 last week and closed at US$5.96 last night. Meanwhile, the primary Australian listing has fallen a lot harder as a result - MSB closed at A$1.59 yesterday, down $1.82 or 53% since it's pre-US-listing price. I have little doubt that those tied religiously to MSB's pursuit of the development and sale of drugs to combat heart conditions and orthopaedic disorders--among others--will continue to support the stock; however, this company doesn't earn any revenues from product sales yet - it only spends money. With its solvency and its pace of R&D so dependent on favourable financing terms, there is clearly a genuine fear that this company might run out of oxygen before it gets a chance to emerge from its development phase.

While this company doesn't fit into any of Rivkin's Local or Global strategies, it's clearly one that develops a lot of interest, given the level of enquiries we've had. And as we've seen this week with the US$160 billion merger of Pfizer and Allergan, we know that this company operates in a space that has enough grunt to not only help lift the Australian economy, but also develop admirable and valuable intellectual property in the process. So there's little doubt that we all want to see this company succeed, but it seems that their advisors have led them very poorly into a far more advanced market in the US, and one that is under huge political scrutiny for its pricing of drugs.

It seems that the paradigm of the US being a superior IPO market for Aussie technology-exposed growth companies has been challenged, especially with OzForex's (OFX) fantastic--albeit potentially brief--run on the ASX. OFX's listing price was A$2.00 in October 2013 and is trading under the expectation of a takeover presently at $3.40, as you can see in today's second chart.


Source: Rivkin, Saxo Bank

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This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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