PolyNovo Limited

PNV Details

Managerial Changes: PolyNovo Limited (ASX: PNV) is engaged in the development and commercialization of innovative medical devices by using its NovoSorb technology in the treatment of burns, surgical wounds and negative pressure wound therapy. As announced on 5 November 2021, the company has accepted the resignation tendered by Managing Director Mr. Paul Brennan, because of rising differences with the Board in relation to Paul’s interaction with the company’s senior management team. Mr. Paul Brennan would be in the position for three months to assist with an orderly transfer.

• The company has commenced a search for a new outstanding candidate and leader with appropriate experience in sales and marketing to spearhead growth in the US and the EU.
• However, Mr. Max Johnston has been appointed as the interim Chief Executive Officer, who has been a director of the company between 2014 and 2020.
• On 10 September 2021, Chief Operating Officer Dr. Anthony Kaye has stepped down from the role in PNV and accepted a more senior position in CSL.

Q1FY22 Financial Summary:

• Growth in EU Sales: During the quarter ended 30 September 2021, the company recorded a growth of 204% in EU sales to $222k as compared to $73k in Q1FY21 as the EU is now open for business.
• Rising UK and Ireland Sales: Backed by the increased access to hospitals and surgeons, the company witnessed a rise of 327% in the UK and Ireland sales to $169k against $39k in Q1FY21.
• Opening of New Accounts: The company opened record 16 new accounts in the US, which brought total US accounts to 135 in Q1FY22 as compared to 82 on Q1FY21.

FY21 Financial Highlights:

• Increase in Topline: For the year ended 30 June 2021, the company posted a growth of 32% in revenue to $29.3 million as compared to $22.2 million in FY20.
• Rising Losses: PNV recorded a net loss after tax (including non-cash items) of $4.6 million against $4.2 million in the prior year.

Revenue & NPAT (Source: Analysis by Kalkine Group)

Key Risks:

• Competition from Peers: The company is exposed to a risk arising from the increasing market share of competitors, which could impact the operational health of the business.
• Failure of Trials: PNV’s operational health could be impacted by a failure in any ongoing trial and may prove as a hurdle for its future growth.

Outlook:

• For Q2FY22, the company anticipates signing additional distributors, which include Cyprus and the Czech Republic. The company is also engaged in negotiation to sign other jurisdictions such as France and Portugal.
• Looking forward, the company is planning to establish 20 US and 5 Canadian recruitment sites for the US pivotal burn trial.
• For FY22 and beyond, the company would focus on enhancing the intensity of worldwide sales and expanding its geographical footprint.

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: During FY21, the company witnessed improvement in the trend of cash burn and closed FY21 with a cash balance of $7.7 million. The stock has been corrected by ~16.98% and ~29.35% in the past one and three months, respectively. The stock of PNV is trading below its 52-week low-high average of $1.450 - $4.080, respectively. 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 can trade at a slight premium to its peers’ average EV/Sales multiple, considering the focus on signing additional distributors, establishment of recruitment sites in future, and geographical expansion plans. For the purpose of valuation, peers such as Imricor Medical Systems Inc (ASX: IMR), ImpediMed Ltd (ASX: IPD) and Nanosonics Ltd (ASX: NAN) have been considered. Considering the indicative upside in valuation, growing sales, higher gross margin, opening of new accounts, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current price of $1.485, as on 16 November 2021, 12:30 PM (GMT+10), Sydney, Eastern Australia.

PNV Daily Technical Chart, Data Source: REFINITIV  

Note: The purple colour line in the chart depicts RSI (14-period).

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

Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

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.

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