PolyNovo Limited

PNV Details

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

• Growth Impetus in the US: More than 50% of the hospitals are now re-engaging for the business of PNV US. The company’s US sales team has grown to 36 with an addition of 6 new trained staff in June 2021 month.
• Progress in BTM Revenues: In FY21, the company’s BTM revenue witnessed a growth of circa 34% year over year. In FY21, US BTM revenue grew 49% year over year, whereas in 4QFY21 US BTM revenue stood at $US 4.9 million, up from $US 3.3 million reported in the year-ago period.
• Growth in Various Geographies: In FY21, PNV’s Distributor revenue witnessed an increase of 53% year over year, with solid rises in the DACH region (Germany, Switzerland, and Austria). In addition, the company’s FY21 Australia BTM revenue rose ~25% on pcp.

A Quick Look at 1HFY21 Results:

• Rise in Total Revenues: In 1HFY21, the company reported total revenues of $12.8 million, up by ~25.3% year over year.
• Improvement in Operating Loss: In 1HFY21, operating loss stood at $0.2 million, down from $1.8 million reported in the year-ago period, owing to robust revenue growth, gross margin expansion, and cost management initiatives.
• Improvement in Bottom Line: In 1HFY21, the company’s net loss after tax stood at $3.5 million, depicting an improvement of ~46.3% year over year, owing to the growth in commercial sales of NovoSorb® BTM locally and internationally.

Revenue Highlights (Source: Analysis by Kalkine Group)

Risk Analysis: The company is exposed to risks associated with general global economic and market conditions. Also, risks related to the development of medical devices and commercialising them in the market and any adverse movement in foreign exchange price may impact the company’s financials. 

Guidance: The company expects BARDA trial program revenue to be in the ambit of $2-$2.5 million in 2HFY21.  For FY22, the company expects more than A$5 million from the increased patient activity and the addition of further sites. 2HFY21 capital expenditure is expected to be ~$1.5 million.

Valuation Methodology: Price/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 the company has been corrected by ~13.19% in the past six months. Currently, the stock has a 52-week’s high and low level of $4.08 and $1.98, respectively. The stock has been valued using the Price/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The stock might trade at a slight discount as compared to its peers’ average, considering risks related to the development of medical devices and commercialising, COVID-19 led uncertainties, failure of clinical trial, adverse forex movement, etc. For the purpose of valuation, peers like Telix Pharmaceuticals Ltd (ASX: TLX), and Paradigm Biopharmaceuticals Ltd (ASX: PAR), Suda Pharmaceuticals Ltd. (ASX: SUD), have been considered. Considering decent FY21 BTM performance, optimistic outlook in the long-run, higher demand for NovoSorb® BTM, expanding international footprint, valuation, and current trading level, we recommend a “Buy” rating on the stock at the current market price of $2.180, down by ~2.243% as on 17 August 2021.

PNV Daily Technical Chart, Data Source: REFINITIV 

Linius Technologies Limited 

LNU Details

Raising of Funds: Linius Technologies Limited (ASX: LNU) is a technology company that offers cloud-based solution to transform static video into hyper-personalised video experiences with its world-first Video Virtualisation Engine^TM. On 2 August 2021, the company announced its plans to raise $4 million from professional and sophisticated investors to fund its growth initiatives.

Quarterly Update for the Period Ending 30 June 2021:

• During the quarter, the company completed trials with a leading University, with the Whizzard product being well accepted by the sector.
• The company now remained committed to successfully convert trials to sales, with LNU undertaking more trials with new University prospects.
• The company remains on track to invest in a $15 billion Video Conferencing marketplace and is aiming to build a robust sales pipeline and preparing for the global launch on AWS and Zoom marketplaces Q1FY22.
• Notably, for the development of the LVS SaaS platform, LNU has spent $637,000 in June 2021 quarter on R&D activities.
• At the end of the quarter, the company’s cash balance stood at $1.59 million.

Cash Highlights (Source: Analysis by Kalkine Group)

Key Risks:

• Foreign Currency Risk: The company is exposed to the risks related to fluctuations in the forex rates.
• Technology Disruption: The company is exposed to the risks related to innovation and change in cloud-based technologies.

Outlook: The company remains well focused on developing and releasing repeatable sports products to drive viewers engagement by providing personalised sports viewing. Further, the company is focused on working with partners such as AWS and Swanbay, who are actively unveiling these Linius solutions to their clients.

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 LNU gave a positive return of ~41.67% in the past month and a positive return of ~47.83% in the past three months. The stock is currently trading below the 52-weeks’ average price level of $0.018 - $0.075. The stock has a support level of $0.024 and a resistance level of $0.037. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with a correction of low single-digit (in % terms). The company might trade at some discount as compared to its peers’ average, considering mounting losses, forex headwinds, disruption in technology, COVID-19 led uncertainties, etc. For the purpose of valuation, peers like Douugh Ltd (ASX: DOU), and Adacel Technologies Ltd (ASX: ADA), WiseTech Global Ltd. (ASX: WTC), have been considered. Considering the current trading levels, decent returns in the past months, losses in 1HFY21, negative ROE, valuation, and associated risks of funding and COVID-19, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the market price of $0.035, as on 17 August 2021, 11:00 AM, (GMT+10), Eastern Australia.

LNU Daily Technical Chart, Data Source: REFINITIV  

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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