PolyNovo Limited

PNV Details

Unaudited Trading Update for December and Q2: PolyNovo Limited (ASX: PNV) is a medical device company that designs, develops, and manufactures dermal regeneration solutions (NovoSorb BTM) using its patented technology.

• The US sales (ex Barda) surged by 76% year over year for December month and were recorded at A$3.40 million (or US$2.43 million). It is worth mentioning that monthly US sales for the first time surpassed US$2 million.
• For the 2QFY22, total US sales stood at A$8.06 million (or US$5.86 million), depicting a rise of 105% on pcp and 31% QoQ. With an outstanding US sales result for October and November, 2Q US sales surpassed US$5 million for the first time.
• 16 and 19 new accounts were added in Q1 and Q2, respectively, bringing the total to US accounts to 154. Markedly, US sales came in at AU$14.20 million (or US$10.38 million) on a YTD basis, indicating an increase of 58% year over year.
• Coming to the rest of the world, in Europe, PNV witnessed positive signals with reordering and saw the first sale to Cyprus. The company also experienced first sales (which includes repeat orders) in Denmark, Italy, and Germany, and Poland.
• Total sales (ex Barda) of PNV stood at A$16.28 million in 1HFY22, depicting a rise of 45% on pcp. Notably, including Barda revenue, total sales for the same time period went up by 43% on pcp basis.

Cash Flow Highlights (Source: Analysis by Kalkine Group)

Risk Analysis:  The company is exposed to significant risks arising from a surged market share of competitors. Further, the company is exposed to strict regulatory requirements and lockdown restrictions.

Outlook: The company plans to boost the US sales team size and is in the process to recruit a further 10 reps in order to increase its coverage across key cities and regions. Further, the company remains focused to augment the effectiveness of its in-market programs, direct sales force, and distributor network. 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)

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: Over the last one month, the stock went up by ~16.88%, and went up by ~27.4% in past one week. The stock has 52-week high and low levels of $3.19 and $1.35, respectively. The stock has a support and resistance level of $1.50 and $1.90, respectively. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price with a correction of low-double-digit (in percentage terms). The company can trade at a slight discount to its peers, considering the effects of COVID-19 led uncertainties, regulatory measures, stiff competition, failure of clinical trials, etc. For the purpose of valuation, peers such as Pro Medicus Ltd. (ASX: PME), Imricor Medical Systems Inc (ASX: IMR), Nanosonics Ltd (ASX: NAN), and others have been considered. Considering the recent rally in stock price, current trading levels, the indicative downside in the valuation, volatility in the healthcare market, and key associated business risks, we recommend a ‘Sell’ rating on the stock at the current market price of $1.785, as on 13 January 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.

PNV 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 for 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 is subject to the factors discussed above alongside support levels provided.

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