Share Price Reaction to Trading Update
Regarding the confusing drop in share price after the announcement of 1 million unit sales of Jurassic World Evolution. 19/07/18
The recent share price movement has been baffling to many investors.
At first it was thought that the drop was due in part to the fourth franchise not being revealed, thus not allowing the market to be sure that the revenue of the company could continue at a steady rate. A trading update on July 3rd confirmed that yr 2018 revenue would be in the upper range of the forecast 58 - 88 million. Certainly good news considering the market had prepared for a lower figure.
However the share price dropped from a high of circa 14.90 on July 3rd to 13.50 by July 5th. Price stabilised here for a short while until selling pressure appeared to move it slightly further south until by July 16th it was at 12.90. By this point it was below the moving average (9) and a fair drop below the lower bollinger band (100), indicating it was oversold. Here it remained until the latest trade update.
The recent trading update told the market that Frontier had sold over 1 million units of Jurassic World Evolution in 5 weeks. This is 57% of the highest broker target for the year. In five weeks. Ordinarily you would expect the market to react positively to this news. However, after an initial very short rise to 13.65 before trading hours, the share price eventually closed at 11.85, almost £2 below.
Investors are rightfully confused by this market reaction. I have never seen such a consistent negative reaction to positive news as this. It has even pushed some to question whether the market is being criminally manipulated, requiring an investigation into this period of trading. I covered the first drop from £18 in a previous article so I shan't repeat myself from that, this is on my website also. The trading during this later period has been somewhat different.
Bennbridge upped their short position to 0.65% on July 11th, coinciding with the drop from 13.50 to 12.90. Their first short coincided with the drop from £18, for a drop to occur after another increase is too coincidental for it not to be related. I would suggest that this short was mainly to blame for this fall in share price. In the following week a similar pattern of trading began to emerge. Large quantities would be sold down in the morning, again in late afternoon, pushing the share price down or keeping it subdued, and then it would be bought back in a few large out of trading hours buys. The out of hours buys would rise the share price, but then the following morning the dumping of shares would begin again, repeating the process, lowering the share price in the morning and near closing time, to then be bought back again after hours.
Bennbridges 0.15 increase in short position covers circa 60k shares, it was this amount that was sold on one day this week, in three 20k blocks, and then this same amount was bought back again after hours. This behaviour helped keep the share price in the 12.90 region for the past week.
Today the trading has made very little sense from any stand point. Two large deferred trades appeared after hours. Due to their size and the fall in share price it would seem that though reported as buys they are likely sells. Who this seller is is unknown. At one point, the spread stood at 12 - 12.10. With the bid stacked against the ask. Someone undercut all the bid prices and sold to a price below the stack, eliminating it and lowering the sp immediately. If someone wanted to sell, why sell at a price lower than many are willing to buy at unless you are trying to force the price down? If it happened once it likely happened numerous times. I am fairly confident someone, or possibly multiple people, are attempting to force this price down. Thought not all agree.
It is possible there are other short positions, under the 0.5% limit needed for disclosure, looking to prevent any rise on the back of this news. Some have simply concluded that the fourth franchise is needed to bring back market sentiment. However this does not hold up to me on the back of this drop after such positive news. Some have speculated that a leak may have occurred regarding a placement in order to fund an acquisition. There is no basis for this other than speculation. The fact that investors are driven to the point of such speculation shows the level of confusion at this market reaction. There were also numerous Director buys at £13 earlier in the year. I doubt any of them would want dilution below their buy in price. Others believe that manipulation to the point of criminal offence has taken place and would like an investigation into the trading. Which of these you subscribe to is up to you.
It would be re assuring for Frontier to release an announcement saying that they do not know of a reason for the current sp drop, alleviating fears of a leak. The current sp stands at a whole deviation below the lower 100 bollinger band, and a far way off the current 6 moving average of circa 13.45.
Braben's comment in the RNS has been under scrutiny since the drop. With people attempting to read into it something that could have precipitated the fall. I am confident in saying that there is nothing there to see. Braben was talking as his usual self, and in commenting on the film he said that it undoubtedly helped sales, however the real reason for the success was the quality of the game.
Tomorrow will prove to be very interesting. The fundamentals here have never been better. At current entry levels, with JWE set to outsell all broker targets by a large margin, investors could double their money by the end of the year alone.
The previous share price target was on the back of 1.75m sales. This is looking woefully low now. My own target is 4m, though even a lower target of 3m would see a share price of at least £19 - £20.
Good luck all.