PolyNovo Limited

PNV Details

Managerial Changes: PolyNovo Limited (ASX: PNV) is engaged in designing, developing, and manufacturing dermal regeneration solutions (NovoSorb BTM) using its patented technology. On 10 September 2021, the company informed the market that Dr. Anthony Kaye had stepped down from his post of Chief Operating Officer in PNV.

A Sneak Peek at FY21 Key Highlights:

• Increase in Operating Income: In FY21, operating income stood at $0.4 million, compared to a loss of $1.2 million reported in the year-ago period, owing to robust revenue growth, gross margin expansion, and cost management initiatives.
• Bottom Line Reported Profits: In FY21, the company’s net income after tax (excluding non-cash items) stood at $0.26 million, as compared to a loss of $1.20 million reported in FY20, owing to the growth in commercial sales of NovoSorb® BTM locally and internationally.
• Rise in BTM Revenues: In FY21, the company’s BTM revenue witnessed a growth of 34% year over year. In FY21, US BTM revenue grew 49% year over year and stood at US$15.5 million.
• Increase in Top-Line: In FY21, PNV reported total revenues of $29.3 million, up 32% year over year, owing to higher sales from NovoSorb® and BARDA clinical trial program (up 18.1% on pcp).
• Liquidity Position: The company exited the period with cash, including short-term investments of $7.69 million. The company’s total debt at the end of the period stood at ~$10 million.

Growth Profile; Analysis by Kalkine Group

Risk Analysis:

• Regulatory and Commercialisation Risk: The company is exposed to risks related to the development of medical devices and commercialising them in the market.
• Forex Headwinds: Any adverse movement in foreign exchange price may impact the financial performance of the company.
• Failure of Clinical Trials: The clinical trial process is designed to assess the safety and efficacy of a medical device before commercialisation. A failure to achieve the desired results may hamper the company's financial performance.

Outlook: The company has started FY22 on a good note, with a positive sales momentum, and expects to expand its sales force, commence its Syntrel VP (hernia) study and improve in customer access. PNV is well equipped with Hernia repair device development and expects to bolster its foothold in the US market in years to come. It also expects to Launch small NovoSorb BTM sizes in Australia, New Zealand, Singapore, EU, or the UK.

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 the company has been corrected by ~27.82% in the past six months. Currently, the stock has a 52-week’s high and low level of $4.08 and $1.915, respectively. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some premium as compared to its peers, considering a reasonable rise in revenues, higher Sales of NovoSorb® BTM, and geographical expansion. For the purpose of valuation, peers such as Telix Pharmaceuticals Ltd (ASX: TLX), and Paradigm Biopharmaceuticals Ltd (ASX: PAR), Suda Pharmaceuticals Ltd. (ASX: SUD) have been considered. Hence, considering improvement in bottom-line, decent FY21 BTM performance, encouraging 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 $1.963, as on 14 September 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

PNV Daily Technical Chart, Data Source: REFINITIV 

Atomo Diagnostics Limited

AT1 Details

FY21 Results Highlights: Atomo Diagnostics Limited (ASX: AT1) is engaged in the development and sale of medical devices. Recently, the company announced that SG Hiscock & Company Limited became a substantial shareholder of the company, with a voting power of 5.12%.

• Increase in Revenues: Revenue from customers stood at $6.72 million in FY21, up 25.1% year over year driven by robust momentum in customer demand for the company’s antibody & antigen testing devices, growth of OEM business in Europe and the US, and sales of the Group's HIV products in Australia and internationally.
• Decline in Losses: The company reported a consolidated loss after tax of $6,021,215 in FY21 against a loss of $9,218,105 in FY20.
• Decline in Gross Margins: Gross margin across the business stood at 51% in FY21, down from 60% reported in the year-ago period, owing to a higher volume of OEM and HIV business contribution during FY21 against higher-margin COVID-19 business continuation in FY20 which accounted for more revenue.
• Increase in EBITDA Losses: In FY2, underlying EBITDA losses stood at $4.79 million, against a loss of $2.38 million in FY20, owing to global expansion, and higher investment, increase in employee headcount and higher regulatory & commercial advisory spending.
• Healthy Balance Sheet: The company ended the period with no debt and a cash position of $17.95 million as of 30 June 2021.

Revenues Highlight (Analysis by Kalkine Group)

Key Risks: AT1 is battered by forex headwinds given that it undertakes certain transactions dominated by foreign currency. The company is also exposed to credit risk, given that the counterparty might default on contractual obligations.

Outlook: In FY22, the company remains on track to continue its expansion strategies of commercialisation partnerships across key global markets, including US market entry. The company aims to develop and commercialise its new Atomo platforms for non-blood applications, with several major companies looking to access its rapid test 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 the company went up by ~78.13% in the past three months. Currently, the stock has a 52-week high and low level of $0.39 and $0.13, respectively. The stock of the company 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 % terms). The company might trade at a slight premium compared to its peers, considering strong balance sheet, increasing top-line, expansion across key global markets, etc. For the purpose of valuation, peers such as Nanosonics Ltd (ASX: NAN), Ansell Ltd (ASX: NAN), Cochlear Ltd. (ASX: COH) have been considered. Considering the aforesaid fact, negative profitability, increase in EBITDA losses in FY21, current trading levels, valuation, technical levels as mentioned below, and the key risks associated with the business, we recommend a “Sell” rating on the stock at the current market price of $0.285 as on 14 September 2021.

Technical Overview

The AT1 price witnessed a steep rally from the low of AUD 0.21 made on 02 September 2021 and recently hit high of AUD 0.285 on 13 September 2021. On the daily chart, AT1 prices are trading below the horizontal trend line resistance level at AUD 0.29. Moreover, the momentum oscillator RSI (14-period) is trading in an overbought zone at (~73.26 level) and which might indicate the possibility of a downside correction from the higher levels. An immediate resistance level for the stock, is placed at AUD 0.29 while the key support level is placed at AUD 0.25.

AT1 Daily Technical Chart, Data Source: REFINITIV 

Note: The purple color line in the chart shows 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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