Polynovo Limited

PNV Details

Conducted Pivot Trial on the first Patient: Polynovo Limited (ASX: PNV) operates in developing, commercialising the medical devices to treat burns, surgical wounds, negative pressure wound therapy through its NovoSorb technology globally. Recently, the company announced to conduct a trial of the pivotal arm of the BARDA funded burn study on its first patient. It requires approval from US FDA for an on-label claim and estimated US$15 million funds to support the BARDA study.

FY21 Financial Performance:

• Increase in Revenue - The company has recorded revenue growth of 32% to ~$29.3 million in FY21, compared to ~$22.2 million in FY20, driven by digital sales and marketing strategies and contributed by NovoSorb BTM USA sales hike of 49%.
• Improvement in Receipt from customers- In FY21, it has received receipt from customers amounting to $24.78 million vs $18.41 million in FY20.
• Increased Bottom-line Growth- The company has incurred a record in NovoSorb BTM net profit by 121.5% to $0.2 million in FY21 against a loss of $1.2 million over the pcp. However, the group reported a loss of $4.6 million in FY21.
• Liquidity Position- At the end of the period, the cash position stood at $7.68 million in FY21 end.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Liquidity Risk- An increase in operating costs to comply with COVID-19 regulations has impacted the company financials.
• Regulatory Risk- To commercialise its product, the company requires regulatory approval, and any delays could impact its operations.

Outlook:

• The company is expecting to gain approval for hernia devices called Syntrel VP from US FDA to commercialise the product in the US market.
• It is expanding its global exposure in Canada, France, Kuwait, UAE, Cyprus, Lebanon, and Middle Eastern markets in FY22 and further exploring a strategic entry in an attractive market, Japan, till 2023.
• The R&D team is actively working for multiple device development opportunities in NovoSorb applications, and products are in the pipeline in the near-term future.
• The company is continuous focuses on investment in marketing and distribution capabilities to drive revenue growth in FY22.
  

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 PNV is trading below its average 52-weeks' levels of $1.840-$4.080. The stock of PNV gave a negative return of ~7.27% in the past one month and a negative return of ~49.99% in the past nine months. The stock has been valued using 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 premium to its peers, considering the recovery from COVID-19 impact and a higher gross margin. For the purpose of valuation, peers such as Nanosonics Ltd (ASX: NAN), Imricor Medical Systems Inc (ASX: IMR), Telix Pharmaceuticals Ltd (ASX: TLX) have been considered. Considering the current trading levels, indicative upside in valuation, expanding its global footprint, strategic investment on marketing and distribution, 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 $1.960, down by ~2.001% as on 24 September 2021.  

PNV Weekly Technical Chart, Data Source: REFINITIV

Clover Corporation Limited

CLV Details

PPT become a Substantial Holder: Clover Corporation Limited (ASX: CLV) engages in manufacturing and distributing functional food ingredients that contain LCPs in the healthcare and nutrition market. Recently, Perpetual Limited and its related bodies corporate became a substantial shareholder with 8,377,746 ordinary shares and voting power of 5.04% in the company.

FY21 Financial Performance:

• The company has recorded a decline in its revenue by 32% to $60.5 million in FY21, compared to $88.3 million in FY20, impacted by reduced demand due to the COVID-19 pandemic.
• It has reported a decreased EBITDA of $9.5 million in FY21 vs $18.9 million in FY20, driven by insufficient shipping availability, port congestion globally and increasing freight costs.
• The company has incurred a net profit of $6 million in FY21, down by 51.9% from $12.5 million in FY20. Its more than 80% customer base is located overseas, and travel constraints have limited the business opportunity.
• The cash position of the company stood at $9.1 million and net debt of $3.99 million as of 31 July 2021.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Impact of COVID-19 pandemic- The company’s activities were delayed due to the COVID-19 outbreak in the region resulting in widespread lockdowns and travel restrictions, and still, the uncertainty prevails.
• Foreign Currency Risk- The company’s operations are exposed to the global market, due to which the company could face the foreign currency risk.

Outlook:

• The company expects strong growth across the market, which was impacted due to the COVID-19 pandemic and invest in a robust global pipeline of new opportunities once markets and borders re-open.
• Once the restriction eases down, it is strategising to launch its new products and re-engage them with customers in target markets like China, Europe, and the USA.
• The company focuses on increasing vertical integration into its supply chain to better customer service and create value addition through strategic acquisition and partnership for logistics.

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: Despite the COVID-19 pandemic impacted the company's finances, it still managed to provide a final fully franked dividend at a price of $0.005 with the ex-date of 25 October 2021 and payment date of 16 November 2021. The stock of CLV is trading below its average 52-weeks' levels of $1.170-$2.190. The stock of CLV gave a positive return of ~1.36% in the past one week and a negative return of ~30.51% in the past one year. The stock has been valued using 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 some premium to its peers, considering an considering the launch of two high EPA powders and a higher asset turnover ratio. For the purpose of valuation, peers such as Incitec Pivot Ltd (ASX: IPL), Kalium Lakes Ltd (ASX: KLL), Secos Group Ltd (ASX: SES) have been considered. Considering the current trading levels, indicative upside in valuation, decent balance sheet, strategic investment, new product offering, increasing its supply chain, 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 $1.475, down by ~0.338% as on 24 September 2021.

CLV Weekly 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.

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