POLYNOVO LIMITED

This report is an updated version of the report published on the 7 September 2022 at 3:54 PM GMT

Section 1: Company Overview and Fundamentals

1.1 Company Overview:

PolyNovo Limited (ASX: PNV) develops and distributes medical devices for various applications. The company's key products include NovoSorb Biodegradable Temporizing Matrix (BTM), which is designed to help surgeons treat traumatic wounds.

1.2 The Key Positives, Negatives, Investment Highlights, and Risks

1.3 Top 10 Shareholders: The top 10 shareholders together form ~19.37% of the total shareholding. Williams (David John) and The Vanguard Group, Inc. hold a maximum stake in the company at ~3.72% and ~2.38%, respectively.

1.4 Key Metrics: During FY22, the company reported an accounts receivable turnover ratio of 6.9x which increased from 6.0x in FY21. The EBITDA margin in FY22 turned positive to +3.7% compared to -7.0% in FY21. Below captured the trend of gross margin and asset turnover ratio:

Section 2: Business Updates, Financial and Operational Highlights

2.1 Recent Updates:

2.2 Insights of FY22: During FY22, the BTM product sales increased from AUD 25.5mn in FY21 to AUD 37.6mn, while PNV Biomedical Advanced Research and Development Authority (BARDA) exhibited a rise of 4.0% YoY in FY22. Finally, the other income for PNV surged by 148.5%, from AUD 0.2mn in FY21 to AUD 0.5mn in FY22.

2.3 Business Highlights for USA: During FY22, the contribution from the USA accounted for 86.53% of total revenue from contracts with customers and came around AUD 35.85mn. Further, the U.S. Burns Pivotal Trial (BARDA) trial is underway, with 23 subjects enrolled as of July 2022 among the planned 120 subjects across 30 sites in the US and Canada.

Section 3: Key Risks and Outlook:

Section 4: Stock Recommendation Summary

4.1 Price Performance and Technical Summary:

4.2 Fundamental Valuation

Valuation Methodology: Price/Earnings Multiple Based Relative Valuation (Illustrative)

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is September 7, 2022. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

Kalkine New Zealand Limited is a Financial Advice Provider (“FAP”) and is authorised by a Transitional FAP license issued by Financial Markets Authority (“FMA”) to provide financial advice. Kalkine provides only general financial advice through its research reports following a person becoming a member. The reports contain buy/sell/hold and other recommendations in relation to equity financial products. The recommendations and opinions [on this website] / [in this report] do not take into account any of your investment objectives, financial situation or needs. Before you make a decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement from the product issuer. You should consider the appropriateness of advice taking into account your own objectives, financial situation and needs and seek independent financial advice before making any financial decisions. If you act on the advice in the research reports, you may have to pay fees, expenses or other amounts (but not to Kalkine).  Further information about the complaints and dispute resolution process, as well as information about Kalkine’s duties are available on Kalkine’s website.  Please read our Financial Advice Provider (FAP) disclosure statement and Complaints Handling Guide, which are available on the website.