The Big Short: NMC Health Plc vs Muddy Waters LLC; NMC Shares Plunged Over 65% in Just 2-Months.

The record nosedive of NMC Health Plc’s stock has left many investors and traders high and dry. This has caused some of the prominent investors to cover their positions betting against the prevailing downtrend in the NMC counter at the London Stock Exchange.

In the arena of investing, every investor has a threshold for bearing losses and when a scrip experiences a steep decline from its industry-leading position, investors have just to walk away.

The Big Short was launched against NMC Healthcare Plc’s stocks on December 17^th, 2019 by a U.S. based investment research company Muddy Waters LLC. Typically, Muddy Waters produces three kinds of research products .i.e., Business Fraud, Accounting Fraud and Fundamental Problems. Its business fraud product initiates coverage on issues that have significantly exaggerated a company's revenues. Accounting Fraud products initiate coverages on real businesses that cooked the company's profit through window dressing. And, its Fundamental Problems product initiates coverages and prepare reports to reveal opaque businesses that have critical fundamental problems that the market does not yet recognise.

The U.S. based short-seller in its research report dated on December 17^th, 2019, stated that “they have gone short on NMC Health Plc, as they have serious doubt regarding the NMC’s financial statements, including the group’s asset values, cash balances, reported profits and reported net debt levels. In their coverage initiated on FTSE 100 Healthcare company  NMC Healthcare Plc, they argued that the group has invested in larges assets at costs that they gauge too expensive to be plausible, including from parties they believe are de facto under common control. This sort of conduct fuelled concerns about the intrinsic asset values and theft of the group’s intellectual property.

A day before the short attack was launched against the NMC Healthcare Plc’s stock, the group’s total market-capitalisation stood at approximately £5.4bn and lost approximately 32% of its market cap in just a day trading on December 17^th 2019. That left many investors high and dry.

However, in response to the Muddy Waters' report, the healthcare group company LON: NMC reported that it considers the report revealed by Muddy Waters to be false and misleading and outlined factual inaccuracies and provided important additional information.

NMC Healthcare Plc is a London Stock Exchange-traded healthcare company. The group is also a constituent of the UK’s broader equity index “FTSE 100”. It is a leading private healthcare operator in the Gulf Cooperation Council with an international network of multi-specialty inpatient and outpatient clinics and hospitals, specialised maternity and fertility clinics and long-term care homes and hospitals across nineteen countries. As on February 07^th 2020, at the time of writing before the market close, the company's market capitalisation stood at £1.88 billion.

Stock Performance

Since the US-based short-seller Muddy Waters launched a short attack against the company's stocks as on December 17^th  2019, almost 2-months before, its shares have plunged more than 65% or over 1700 points to GBX 868.0 (as on February 07^th 2020, at 11:20 AM GMT, before the market close). The market-capitalisation has taken a nosedive from approximately £5.4 billion in mid-December 2019 to about £1.88 billion as of today. A report on the group’s asset quality and financial engineering quoted by Muddy Waters has taken out billions of dollars from the company's market cap, and indeed, the stock has plummeted beyond the threshold of tolerance for investors.

Price % Change

On a YoY basis to February 07^th 2020, LON: NMC shares have declined approximately 66.3%, six-months return is negative 65%, in the past 3-months it tumbled approximately 66%, gave up approximately 48% in a month-over period and traded approximately 19.81% lower in the past five trading sessions. Also, at the time of writing at 11:25AM GMT, its shares skidded about 98.49 points or 10.21% lower at GBX 869.20.

52-week High/Low range vs CMP

In the year-over period, NMC stocks have registered a 52-week high of GBX 3,059.0 (as on September 11^th, 2019) and a 52-week low GBX 764 (as of February 07^th 2020), and at the current traded level as highlighted above, its shares traded about 71.58% lower against the 52-week high and approximately 13.7% above its 52-week low price level. It reflects a steep bearish trend in the stock, as at the current traded level, the stock is heavily tilted towards its 52-week low price level. Also, stock is continually registering new 52-week lows, which is again a bearish trend in any underlying security.

Since the short attack was triggered as on December 17^th, 2019, NMC stock ended up for 11 times, and down for 25 times against the respective previous closes. So, Ups/Down ration in the stocks since December 16^th, 2019 stood at 11/25 or 0.44x, which is a negative trend. Ideally Up/Down ratio above 1.0 considered as favourable trend in the underlying.

Technical trends

At the current trading levels, shares of NMC traded substantially below (-33%) its long-term support level of the 200-day simple moving average of GBX 1,306.58, which is typically considered as a strong bearish trend in stocks. Also, a price below the 200-day SMA is considered as a long-term downtrend in security. Also, Moving Averages Convergence Divergence is steeply falling, with the difference between 12-day Exponential Moving Average (EMA) and 26-day EMA being quite negative, which is another unfavourable measure in an underlying security.

Also, the stock is trading below its 5-day, 10-day, 20-day, 30-day, 50-day and 100-day daily moving average, which reflects that the primary trend in the stock is bearish.

Conclusion

Despite a formal communication extended by the company to the shareholders, a day after the short attack was launched by Muddy Waters, that allegations were false and misleading and even after assuring investors on the group's asset quality, cash balances, reported profit and reported debt levels, Â its shares have failed to trade within support levels and have tumbled so far on the LSE.

Also, on January 08^th  2020, the group reported that H.E. Mr Saeed Mohamed Butti Mohamed Khalfan Al Qebaisi and Mr Khaleefa Butti Omair Yousif Ahmed Al Muhairi, two major shareholders in the consolidated healthcare group sold 31.2 million outstanding shares of the company, which represented approximately 15% of the group’s issued and outstanding share capital at £12.0/share, which was approximately 20% discount on the closing price of the stock on January 07^th 2020. This also raised eyebrows of many investors; however, the company reported that the transaction that was exercised by the major shareholders was related to reduction of their personal indebtedness and do not represent the true and fair price of the group's stocks.

However, despite several statements to the contrary, extended by the group's management to investors, the company’s stock has failed to get rid of the sentiments surrounding those short attacks.