Innovalues has slid 15.5% from an intraday high of $1.095 on 22 Apr 2016 to close $0.925 on 17 May 2016. Has it bottomed? Or will there be more selling pressure?
Chart analysis
Innovalues tested the support of around $0.900 on 11 May and 12 May 2016 and closed at $0.905 and 0.925 respectively. Despite the dividend of $0.026 which went ex-dividend on 13 May, Innovalues did not close below $0.900. Furthermore, the past four trading days (12 May – 17 May) saw Innovalues test its 50D exponential moving average (“EMA”) resistance currently at $0.925. It closed at $0.925 on 17 May with 3.2m shares transacted, marginally lower than 30D average volume of 3.3m shares but significantly higher than 100D average volume of 1.7m shares transacted.
Although 21D EMA is declining, 50D EMA is flat and 100D and 200D EMA are still rising. There is no formation of death cross. In addition, indicators such as RSI and MFI are strengthening. Based on Chart 1, the bulk of the selling (or profit taking) seems to have been completed. The bearish tinge in Innovalues’ chart will be negated if it can breach $0.925 – 0.935 on a sustained basis.
Near term supports: $0.900 / 0.890 / 0.875
Near term resistances: $0.925 – 0.935 / 0.955 / 0.970 – 0.975
Chart 1: Innovalues tests key resistance $0.925 – 0.935
Source: CIMB chart as of 17 May 16
Noteworthy points
1. Innovalues appointed Rippledot Capital as their corporate adviser
On 7 April 2016, Innovalues announced that they have appointed Rippledot Capital to conduct a review of the strategic options available to the company with a view to enhancing and unlocking shareholder value. Based on market talk and analyst reports, there is a possibility that Innovalues may be an M&A target.
2. UOB Kayhian estimates take over price to be >$1.20, i.e. 30% upside to last closing price
There were two recent M&As in the Asian technology space, viz. Interplex in Singapore and IPE Group in Hong Kong. According to UOB Kayhian, IPE is a closer comparison to Innovalues. IPE was bought over at a trailing PE of 17.4x. If this PE was ascribed to Innovalues, UOB estimates that the take over price for Innovalues can be at least S$1.20. It is noteworthy that Innovalues has better operating and financial metrics than IPE.
3. What if there is no M&A?
Innovalues has risen from $0.780 on 24 Mar 2016 to a high of $1.095 on 22 Apr 2016 before it weakened and closed at $0.925 on 17 May 2016. Thus, if the potential M&A event did not go through, it is likely that Innovalues may plunge to $0.780 or lower. However, Maybank Kim Eng pointed out that Rippledot has a good track record of doing successful privatisations in the past and it is likely to have good connections with private equity funds. Deals which were handled by Rippledot included Goodpack, First Engineering, MMI, Seksun and Unisteel.
4. Innovalues short selling interest highest since the start of the year
With reference to Chart 2 below, the short selling interest for Innovalues spiked to the highest for 2016 in tandem with the drop in Innovalues’ share price. There was a short selling interest of approximately 514K worth of shares yesterday. There are many intricacies in interpreting this short selling interest chart (see SGX on short sell orders here). Suffice to say that there are short sellers in Innovalues which may have partly contributed to the drop in its share price.
Chart 2: Innovalues’ short selling interest
Source: Bloomberg 17 May 2016
Conclusion – profit taking may soon be over
In view of the above noteworthy factors and based on Chart 1 above, my personal opinion is that it is likely that the profit taking in Innovalues may soon be over. Readers should consult the various analyst reports and Innovalues company website (click here) for more information.
Disclaimer
Please refer to the disclaimer here