BUY HOLD SELL – Polynovo (ASX: PNV)
Polynovo (ASX: PNV) is a medical device making company that designs, develops and manufactures dermal regeneration solutions using its patented biodegradable polymer technology. The technology which looks a bit like a foam sheet or a sponge, helps the body use its own mechanisms to repair damaged tissue. Commonly used to treat burns and traumatic wounds. Main points
- The half-year sales update failed to impress with slower than expected sales in October drowning out quarterly sales growth of 75%. November numbers fared better in the US, NZ and Taiwan, although pre-empting what could be an uninspiring HY result.
- Managing director Paul Brennan said predicting the sales trajectory in the US, its key market was “challenging”. Understandable given COVID headwinds and the difficulty of getting the technology into hospitals. On a positive note, half-year sales were up 41% on the year in the US.
- Recently entered Poland with the appointment of Hortho Medical Innovations as its exclusive distributor. PNV entered new markets in Greece, Belgium, Netherlands, Luxembourg, Sweden, Finland and Taiwan during the first half. A commendable effort.
- Another hiccup for PNV was lower than anticipated revenue due to the delay in obtaining US FDA investigation device exemption (IED) approval for its NovoSorb BTM product. Pushing out the recruitment of patients for this trial now scheduled for late third quarter.
- Revenue last financial year was $22m with earnings of -$3.2m. Full-year sales of $24m forecast back in August for FY21. Results in mid-February will clarify that trajectory. Whatever the result, it is not likely to be an impressive number given obvious COVID difficulties.
- First impression, not the most appealing company on a fundamental basis, some ugly numbers in the mix
- ROE this year expected to be -9.9%. That said, brokers anticipating that number to dramatically bounce back in FY2 and FY3.
- For a company with negative earnings, there are a lot of people willing to pay top dollar. PNV sits on a PE of -837.6x. There is a lot of hope in future earnings built into the share price. Analysts forecasting a far more palatable level of 14.4x in FY4. That said, the further out the forecast, the less accurate it is.
- Revenue and EPS growth far more appealing if the forecasts are to be believed. Solid earnings in the next few years predicted.
- Of the brokers surveyed by Thomson Reuters, 42% have a BUY or STRONG BUY recommendation. It is also trading at a 17% discount to the average broker target price