PolyNovo Limited

PNV Details

FY21 Financial Performance: PolyNovo Limited (ASX: PNV) develops and commercialise medical devices that offer NovoSorb BTM technology, which is used to treat burns, surgical wounds and negative pressure wound therapy globally.

• The group has posted revenue growth of 32% to $29.3 million in FY21, compared to $22.2 million in FY20. The US region is the largest revenue contributor, with a 49% sales hike and focused on digital and marketing campaigns driving the top-line growth during the year.
• In addition, it reported an improvement in product sales (BTM) by 34% and BARDA by 18% on a year over year basis in FY21.
• In FY21, the company has recorded total operating expenses of $27.3 million, up 26% YOY, impacted due to increased R&D, employee-related, and administration expense
• It delivered an increase in the net loss by 10% to $4.6 million in FY21 against a loss of $4.2 million in FY20.
• At the end of the period, the company’s cash position stood at $7.68 million vs $11.64 million as of 30 June 2020.

Other Income Highlights (Source: Analysis by Kalkine Group)

Key Risks:

• Impact of COVID-19 pandemic- The company has a significant challenge on its operation due to a decrease in face-to-face interactions, reduced hospital activity and still, the uncertainty prevails.
• Regulatory Risk- To distribute its product, the company requires certain approvals, and any delays could impact its financial operations.

Outlook:

• The management focuses on the distributor model and rapidly expanding its efficient services across the European region, which is expected to generate profit in FY22.
• The company's FY22 sales began with positive momentum, and it anticipates continuing sales expansion and improvement in customer access with the expectation of receding COVID-19 restrictions.
• It is enhancing its geographical footprint in a target region like Japan, which is an attractive market. However, the company might delay its entry in the said market till 2023, owing to the spanning of complex regulatory requirements.
  

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

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of PNV is trading below its average 52-weeks' levels of $1.650-$4.080. The stock of PNV gave a positive return of ~2.31% in the past one week and a negative return of ~36.10% in the past nine months. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount to its peers, considering the uncertainty of the COVID-19 pandemic, negative net margins, decrease in current ratio, and also taking into consideration that the company has been trading at a discount in the past three years over its peers’ average EV/Sales multiple. For this purpose of valuation, peers such as Nanosonics Ltd (ASX: NAN), Imricor Medical Systems Inc (ASX: IMR), Telix Pharmaceuticals Ltd (ASX: TLX) and others have been considered. Considering the current trading levels, indicative upside in valuation, strategic distribution model, expansion of geographical footprint, decent top-line growth, optimistic outlook, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $1.735, as on 14 October 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

PNV Daily Technical Chart, Data Source: REFINITIV

Virtus Health Limited

VRT Details

Notified Review on ACCC’s Update: Virtus Health Limited (ASX: VRT) provides various health services that include fertility services, medical day procedure services, medical diagnostics, and pathology services globally.  The company has recently notified the Australian Competition and Consumer Commission's (ACCC) review on its proposed acquisition of Adora Fertility and three-day hospitals from HLS. Further, ACCC's informed the company of the ongoing public review that seeks the Federal Court interim order to prevent imminent acquisition.

FY21 Financial Performance:

• The company has posted strong revenue growth of $324.6 million in FY21, up 4% from $258.9 million on a pcp basis. Active volume growth in international fresh cycles was up by 28.8% year over year and day hospital revenue grew by 41.4%, which supported the top-line growth.
• In FY21, receipt from customers (inclusive of GST) stood at $323.97 million, compared to $262.82 million on a pcp basis. In addition, other current financial liability decreased to $823k at the end of FY21 vs $2.37 million at the end of FY20.
• The company has recorded a robust net profit of $43.8 million in FY21 against a profit of $0.946 million in FY20, driven by strong international performance, and progress in operating efficiency.
• The company’s cash position stood at $37 million as of 30 June 2021 vs $38 million as of 30 June 2020.

EBITDA Performance (Source: Analysis by Kalkine Group)

Key Risks:

• Impact of COVID-19 pandemic- The company is exposed to demand risk on its ARS treatment and elective surgeries during the lockdown, which has impacted the company operations and is still uncertain, going forward.
• Price Risk- Any changes in Commonwealth Government funding for the healthcare services might impact the company's financials.

Outlook:

• The company focuses on investing in technology, precision fertility digital platform and new clinics, which might drive growth in FY22/23.
• It expects a continued increase in demand for ARS services in FY22 and might remain competitive and fragmented in the future.
• The company remains on track to diversify its investment in new operating models (capital light VaaS) and collaborate with start-ups to develop new tests and technologies.

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

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of VRT is trading below its average 52-weeks' levels of $4.200-$7.470. The stock of VRT gave a positive return of ~25.05% in the past one year and a negative return of ~15.54% in the past three months. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount to its peers, considering the impact of the economic slowdown and a higher debt-to-equity ratio. For this purpose of valuation, peers such as Japara Healthcare Ltd (ASX: JHC), Estia Health Ltd (ASX: EHE), Regis Healthcare Ltd (ASX: REG) and others have been considered. Considering the current trading levels, indicative upside in valuation, increased demand for ARS services, robust topline growth, optimistic outlook, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $5.520, up by ~0.546% as on 14 October 2021.

VRT Daily Technical Chart, Data Source: REFINITIV

ImpediMed Limited

IPD Details

Business Update: ImpediMed Limited (ASX: IPD) develops, manufactures, and commercialises bioimpedance spectroscopy (BIS) devices and software services used to assess body composition in healthy individuals globally. Recently, the company has initiated its first heart failure program at Advocate Health’s Heart Institute, for an initial period of three years. Moreover, it might have a positive impact on the commercialisation of the SOZO Heart Failure Application.

Recent Updates-

• The company has announced a collaboration with a distributor, Icon Group, for its 13 SOZO units, scheduled to be installed over the coming weeks.
• It has been announced that the company's director has undergone a change of interest.
• The company has ceased 754,000 shares on 30 September 2021, due to the expiry of other convertible security with conversion.
• The company notified that the Chairman, Mr Scott Ward, will retire from the board, effectively on 10 November 2021.
• The company has issued 1,749,314 ordinary shares at a price of $0.117 per share under section 708A(5)(e) of the Corporations Act.
• Heart Failure Society of America (HFSA) has demonstrated the company's SOZO® BIS in its abstract, which was conducted at Scripps Memorial Hospital campuses and was accepted in the Clinical Care category.

FY21 Financial Performance:

• The company has recorded strong revenue growth of 46% to $8.4 million in FY21, compared to $5.7 million on a pcp basis. This was largely contributed by SOZO SaaS Revenue which grew by 77% during the year.
• It has reported an improved gross profit of $6.8 million in FY21 vs $4.06 million in FY20.
• In FY21, it has reported an increase of SOZO Annual Recurring Revenue by 67% year-over-year to $8.7 million. Additionally, signed a total contract value of over $12.0 million during the year.
• The company has narrowed down its net loss to $20.70 million in FY21 against a loss of $21.32 million in FY20, owing to a decrease in clinical trial costs, slightly offset by a decrease to proceeds from tax incentives and government grants and an increase in staff costs.
• The net debt stood at ~$17.93 million after deducting cash and cash equivalent came in at $19.68 million as at 30 June 2021.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Liquidity Risk- The company requires sufficient liquidity for new technology innovation, operational activity and mitigate the working capital risks.
• Impact of COVID-19 pandemic- The company could have a significant effect on customers demand, supply chain, staffing, which, in turn, could impact the company's finances, going forward.

Outlook:

• The management focuses on expanding its strategic market, accelerate innovation and connect SOZO's with digital health platforms to drive growth in FY22.
• The company is well defined in three key growth areas: Oncology, Heart Failure, and Renal Failure, which will create significant value and accelerate SOZO uptake in the coming years.
• It enhances its commercial sales of heart failure through pilot programs in key heart failure centres utilising the pilot programs and presenting new Heart Failure data at key scientific meetings that might support future growth.
  

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

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of IPD is trading above its average 52-weeks' levels of $0.078-$0.185. The stock of IPD gave a positive return of ~76.82% in the past one year and a positive return of ~20.83% in the past one month. It has a support level of $0.125 and resistance level of $0.180. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with a correction of high single-digit (in percentage terms). The company might trade at some discount to its peers’ average EV/Sales multiple, considering challenging global environment, stringent regulatory requirements, changing customer preference, supply chain disruptions, liquidity risk, etc.  For this purpose of valuation, few peers like Nanosonics Ltd (ASX: NAN), Fisher & Paykel Healthcare Corporation Ltd (ASX: FPH), Imricor Medical Systems Inc (ASX: IMR) have been considered. Considering the current trading levels, recent rally in the stock price, indicative downside in the valuation, and the key risks associated with the business, we recommend a ‘Sell’ rating on the stock at the current market price of $0.150, as on 14 October 2021, 01:55 PM (GMT+10), Sydney, Eastern Australia.

IPD Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.