Is First Island next ?


16 December 2018

The 28th October Article 'When will First Island clear ?' started out thus :-

The 1st October TR1 RNS that indicated that First Island had reduced their holding by around 8 Million shares (to sub 3% of the business) resolved one question - who was selling during the post-strike/post-Sojitz price recovery. However it raised another one - namely would they continue selling ?

The question remains despite the publication earlier this week of the updated Bushveld Shareholder register which shows no change in First Island's holding in the two months since the 1st of October.

The possibility still remains that First Island may be selling because a) there may be no formal obligation to notify the company of their shareholding or b) if there is an obligation then perhaps it only arises once a disposal is completed. There is of course also the possibility that even if they were obliged to notify the company then perhaps this information has not yet filtered through to them yet.

We cannot therefore rule out the possibility that First Island has been selling after the 1st of October and hence have applied the same analysis of large Sells that was applied then. Using the same simple heuristic to identify the trades that we think may be relevant since the 18th September, we now obtain the following 130 trades:-

When you assign these to the First Island Shareholding and plot the result you get the following rather revealing behaviour;

The extrapolation line is the same as was shown in the original article. Note how surprisingly stable the estimated FI selldown appears to be, and how close to the initially extrapolated rate. For four whole weeks prior to the 16th of November the selldown rate appears remarkably stable -  6 Million shares per week - just marginally slower than that initially estimated rate of 7 Million shares per week.

The 16th November was the recent peak in share price. After that point it appears that the selldown rate has been significantly reduced - to only 2 Million shares per week. Why ? 

Whilst First Island (assumed FI, but it could be another participant in the March 2018 placing) shares have been taken at a significantly reduced rate this is not because buying has slackened off. As can be seen from the graph above the Nett MM's short exposure has grown from c. 5M on the 16th Nov to almost exactly 14M now. This short position appears to grow at just the point that Market Makers stop taking so many shares from their friendly seller. Why ?

The red dotted line above shows why. This is the estimated average price of the Sells that comprise the MM's short exposure. For the short to make money the Market Makers need to get the real SP below this dotted line - it seems that the sells are being delayed until the price is where they want it.

[ As an aside you can see how the MM's response to the two shorting attacks (the first on the the 20th November and the second on the 11th December) has caused the MM's short to be significantly lengthened, albeit at the expense of reductions in the average short sell price, especially the second short. The walkdown late on friday afternoon from 42p seems rather coincidental with the 42p average short sell price that has now been obtained over the last 5 weeks of MM short selling.]

The critical question we need to consider is this: did First Island (or the Sellers in question) tell their Broker on the 16th November to sell their shares more slowly, or are the Brokers deliberately holding the Sells back so that they can only take them once they have been able to get the share price significantly below their (the MM's) shorting price ? 

If not the former then I would suggest that this is an example of Market Abuse - the Seller's trades are being manipulated by the Brokers (i.e. Market Makers) to NOT get the best price for their shares. 

We may well return to the question of possible market abuse later - it would appear that First Island, if they are indeed selling, cannot be very far away (1.5M) from having sold the lot - however the simple fact of the existence of such a large apparent short position (14M) suggests that the MMs think that they can get sufficient shares from someone else in addition to First Island. This gives even less of an excuse not to have also sold either First Island's or the second Seller's shares in the last 5 weeks. Multiple Sellers appear to now be getting taken advantage of.

This article only conveys the personal opinion of the author. Whilst every effort is made to ensure the content is accurate, we cannot guarantee the accuracy of the data shown. This article does not constitute professional, financial or investment advice and must not be used as a basis for making investment decisions.

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