Stop Beating Yourself Up and BUYAfter listening to the RBC presentation and reading the Getinge PR yesterday, I doubt anyone could say the business fundamentals of TSO3 is worse now vs. when the preception on Jan25 when the interim deal PR came out:
- Getinge relationship sounds more solid: RR explained that TSO3 is only marketing to hospitals not targeted by Getinge, and the very complimentary Getinge PR showed us the working relationship is sound and low temperature sterilization is a key strategic market for them
- We also got more evidence of how VP4 performs in real life, and how it is truly a next-gen product: ability to do scopes, lower costs through higher load/throughput/mix load, lower operator mistakes. The robotic arm piece of news is significant as well
- FDA: now everyone knows sterility is never an issue, but compatibility. It all comes down to what the labeling will look like, and how often hospitals will need to inspect their scopes. For me, this is a matter of when, not if.
I am sure many of you will say: "but the stock price is tanking, doesn't it tell you something?" It would normally, but I have a theory on why the selling pressure has picked up in the last few days, so please hear me out.
When we look at the top holders list, we know Sprott Cdn Equity Fund owns about 3.6mm shares, or 4%. They recently (Feb15) let go of their portfolio managers of that Fund due to performance. These outgoing managers are big believers of TSO3, and put >10% of the Fund in it.
Link: https://globenewswire.com/news-release/2018/02/15/1349202/0/en/Ninepoint-Partners-LP-Announces-Changes-to-Portfolio-Manager-Line-Up.html
The Fund is put into temporary custody under another manager at Ninepoint, but the Fund will be merged into the Sprott Concentraed Cdn Equity Fund by the end of March. That fund is outsourced to Scheer, Rowlett & Associates. If you look at Scheer's other Cdn Equity Fund, you can see their focus is on large cap value names. At the very least, they do not want a 10% position in TSO3 like it was at the old Sprott fund.
Link: https://www.cclgroup.com/cclfunds/en/home/our-strategies/separately-managed-account-strategies/scheer-rowlett-canadian-equity/overview
As a result, I don't think they will want to keep the TSO3 position (or sell a big chunk of it at the very least). I have seen several of these fund mergers in my career, and the new incoming managers will actually direct the interim custodian manager of what to do during the transition--to get the portfolio into something they want, and they are price insensitive. Reason--performance is not attributed to the new manager during this transition period, only when they officially take over the fund. Furthermore, trading desks of major brokers will sometimes look at the portfolios of these transitioning funds and trade against them, if they are pretty sure the new portfolio managers will need to liquidate certain illiquid positions, like a TSO3. On the flipside, existing or potentially new shareholders could come in to clean up these blocks. But they typically want a "deal" on price.
Normally, there is no way why the stock didn't react positively to yesterday's presentation and PR, unless the overall market is really tanking (which is not the case). But now I am pretty comfortable that I know why.
However, we will have to endure more of this selling pressure as Sprott still has a lot to let go.
Just look at the volume vs. price on TSO3: the stock stablized at $1.5s for a while with dwindling volume. However that all changed on Feb 16 (one day after the Sprott PR), where we saw huge selling pressure with little price sensitivity, and a 2-3x increase in trading volume.