Stocks’ Details

PolyNovo Limited

Decent Sales Growth:  PolyNovo Limited (ASX: PNV) is engaged in the development and commercialisation of innovative medical devices by using its NovoSorb technology in the treatment of burns, surgical wounds and Negative Pressure Wound Therapy. The market capitalisation of the company stood at $1.77 billion as on 14^th January 2021. Recently, the company released a trading update, wherein, it experienced decent growth in sales. For Q1 FY21, the company recorded a rise of 75% in sales over Q1 FY20. In addition, the company reported strong sales in December 2020, which have surpassed the budget in the US, NZ, and Taiwan. During 1H FY21, the company opened 35 new accounts across all direct markets. Moreover, the company has opened 109 new accounts during CY20, reflecting growth of 89% over CY19. With respect to the US, the company recorded a rise of 41% in sales over 1H FY20. In the month of November 2020, the company made its entry into Belgium, Netherlands, Luxemburg (Benelux) and Sweden via an extension of its partnership with PolyMedics Innovations (PMI) in Germany. During FY20, PNV witnessed a surge of 104% in NovoSorb BTM sales revenue to $19.1 million. This was supported by a strong performance from the US, Australia, New Zealand and DACH.

Key Financials (Source: Company Reports) 

Outlook: The company is not confident about forecasting sales for the short-term, mainly in the US. However, PNV is optimistic about the medium-term outlook. For FY21, the company expects capex of $2.3 million.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company closed FY20 with a cash balance of $11.6 million and had an unused debt facility of $2 million. The stock of PNV has moved up by 23.67% and 31.83% in the last six and nine months, respectively. As a result, the stock is trading above its 52-weeks’ low-high average of $2.677. Considering the above factors, we have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price with correction of low double-digit (in percentage terms).  For the purpose, we have taken peers such as Telix Pharmaceuticals Ltd (ASX: TLX), Paradigm Biopharmaceuticals Ltd (ASX: PAR) and Oncosil Medical Ltd (ASX: OSL). On a technical analysis front, the stock has a support level of ~$1.979 and a resistance level of ~$3.295. Therefore, considering the aforesaid facts, price movement in the past few months, and valuation, we are of the view that most of the positive factors have been discounted at the current trading level and give an “Expensive” rating on the stock at the current market price of $2.770 per share, up by 3.358% on 14^th January 2021. We further suggest investors to wait for a better entry-level.

Respiri Limited

Rise in Minimum Purchase Value by Cipla: Respiri Limited (ASX: RSH) is involved in the research, development and commercialisation of medical devices, and the development of mobile health applications. The market capitalisation of the company stood at $97.11 million as on 14^th January 2021. Recently, the company announced that SuperChem pharmacy network would commence sales of wheezo™ in 14 pharmacies Australia-wide. The company added that SuperChem is a trusted and respected pharmacy brand in Western Australia and has opened additional stores in NSW and South Australia. Previously, the company has decided to flex its sales model by lowering the unit pricing of the wheezo™ device from $299 to $99.50 in order to gain traction of patients. This follows the commencement of direct pharmacy sales by Cipla on 21 October 2020. In addition, Cipla increased the minimum initial purchase by 250% to 7,000 units under the Exclusive Sales/Marketing, Distribution & Logistics Agreement signed in July 2020.

During the quarter ended 30^th September 2020, the company reached a binding Electronic Manufacturing Services (EMS) agreement for its worldwide wheezo requirements Entech Electronics for the global supply wheezo in the future. During the quarter, the company was focused on the launch of wheezo, which was evident by expenditures made by the company. Gross operating cash outflows for the quarter stood at $2.0 million, which were $0.3m higher than Q2 2020.

Capital Raising: On 20^th October 2020, the company finished an oversubscribed placement and raised $12.5 million through the issue of 62.5 million new fully paid ordinary shares at an issue price of $0.20 per share. The company would use these funds in the market development activities for the US and European market launches ($1.6 million), sales and marketing initiatives ($2.1 million), product development and research ($1.5 million) and working capital, principally inventory build to meet expected demand for wheezo ($6.5 million).

Use of Funds (Source: Company Reports)

Guidance: For CY21, the company expects to report revenue in the range of $6-$8 million, which is likely to be supported by its attractive revenue model.

Stock Recommendation: As on 30^th September 2020, the cash and cash equivalents of the company stood at $1.9 million. Current ratio of the company stood at 2.22x in FY20 as compared to 0.39x in FY19, which showcases that the company is well- placed to settle its short-term obligations. In the last three months, the stock of RSH has corrected 42.55%, and as a result, the stock is trading below its 52-week low-high average of $0.154, offering decent opportunity for accumulation. On a technical analysis front, the stock has a support level of ~$0.11 and a resistance level of ~$0.146. Thus, in light of the rising order from Cipla, recent capital raising, decent liquidity position and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.135 per share on 14^th January 2021.

ResApp Health Limited

Launch of SleepCheck App: ResApp Health Limited (ASX: RAP) is engaged in the development of smartphone applications for the diagnosis and management of the respiratory disease. The market capitalisation of the company stood at $62.16 million as on 13^th January 2021. Recently, the company has appointed Mike Connell on the role of VP, Commercial. In the month of December 2020, the company rolled out its direct-to-consumer smartphone app “SleepCheck” for the self-assessment of sleep apnoea. Previously, the company has inked a non-exclusive, two-year software licensing agreement with Workplace Medicine Australia Ltd (WMA) in order to integrate its acute respiratory diagnostic test ResAppDx, in the upcoming fully integrated and holistic workplace health and wellbeing management application, Medetective of Workplace Medicine Australia Ltd. RAP would be receiving a monthly fee for every worker which WMA’s Medetective service covers under gold and platinum subscription tiers. During September 2020 quarter, the company reported net cash outflow from operating activities of $1.44 million and also received $1.525 million from the exercise of options. For the year ended 30^th June 2020, the company reported net loss amounting to $8,469,158 as compared to $5,439,459 in FY19.

Cash Flows (Source: Company Reports)

Outlook: Looking forward, RAP would continue to work with Australia’s leading telehealth platforms Phenix and Coviu for exploring opportunities which would enhance the uptake of ResAppDx amongst clinicians.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company closed September 2020 quarter with a strong cash balance of $5.8 million, which places the company in a decent position to pursue future opportunities. The stock of RAP ha corrected 2.38% and 17.99% in the last one and three months, respectively. As a result, the stock is trading towards its 52-week low level of $0.055, offering decent opportunities for accumulation. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of low double-digit (in percentage terms). For the purpose, we have taken peers such as Oncosil Medical Ltd (ASX: OSL), Polynovo Ltd (ASX: PNV), and Nanosonics Ltd (ASX: NAN), to name a few. On a technical analysis front, the stock of RAP has a support level of ~$0.066 and a resistance level of ~$0.141. Therefore, considering the recent launch of the mobile app, agreement with WMA, decent cash position, current trading levels and key risk associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.082 per share on 14^th January 2021.

VIP Gloves Ltd

Increase in Order Book: VIP Gloves Ltd (ASX: VIP) is involved in the production of single-use nitrate gloves for the medical industry. The market capitalisation of the company stood at $46.99 million as on 14^th January 2021. Recently, the company announced that its order book has been improved and is currently full for delivery to finish 2021. In another update, VIP announced a dividend policy of 20% to 40% of earnings before significant items, which is subject to its financial position. The dividend policy became effective on 8^th December 2020.  As a result, the company is expecting to declare its first dividend after finalising the consolidated financial statements for 1H FY21.

During the quarter ended 30^th September 2020 (Q1 FY21), the company recorded a rise of 21% in nitrile glove production to 134 million pieces from 111 million pieces in Q4 2020. In addition, the company recorded an EBITDA growth of 340% as compared to Q4 FY20. The net cash from operation stood at $1.4 million, reflecting a rise of 36.6% to because of its continued cost-savings measure which witnessed a fall of 48.9% in key operating expenses like administrative and staff cost. In addition, the company provided clarification on the news that numerous glove factories in Malaysia were being shut down because of workers contracting Covid-19. The company added that it has not witnessed a single positive case of COVID-19 in its factory and the production is operating as normal.

Key Financials (Source: Company Reports)

Outlook: As a result of increased demand, the company has experienced a continuous rise in average selling prices (ASP) in the last few months. As a result, VIP anticipates a rise of 50% in ASP for December 2020 quarter as compared to ASP of US$50 per 1,000 pieces in September 2020 quarter.

Stock Recommendation: As the end of September 2020 quarter, the company recorded a rise of 129% in cash & cash equivalent to A$2.2 million. The stock of VIP has corrected 9.72% and 17.72% in the last one- and three-months’ time frame. As a result, the stock is trading towards its 52-week low level of $0.029. On a technical analysis front, the stock has a support level of ~$0.04 and a resistance level of ~$0.092.  Thus, considering the recent announcement of dividend policy, rise in production and cash receipts and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.065 per share, up by 3.174% on 14^th January 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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