PNV 1H FY24 Results
Dermal repair company $PNV reported its 1H FY24 results this morning. The major elements of 1H have been pre-released in the “Trading Result” announced over a month ago. This set out the sales results, which were very strong, as well as anchored the key financials. So, I expect that today will be less about the result itself and more about the trajectory towards the FY. More on all that below.
Their Highlights
The half year audited results attached to this release show:
- Record 1H FY24 sales of A$42.2m up 54.9% on STLY of A$27.3m.
- Total revenue including BARDA of A$48.8m up 65.6% on STLY of A$29.5m.
- Strong growth in U.S. achieving record sales of A$32.2m up 41.7% on STLY of A$22.8m.
- ROW sales of A$10.0m up by 122.2% on STLY of A$4.5m including strong performances in ANZ, UKI, and the Middle East, also growing sales in India, Hong Kong, and Canada.
- The Group recorded a net profit after tax of A$2.7m (1H23: A$3.8m loss).
During the Period, the Company’s other key initiatives and achievements include:
- Exceeded $8 million monthly NovoSorb BTM sales for the first time in November ($8,810,000).
- Appointed Chief Medical Officer and Chief People Officer.
- Additional funding of US$10 million from the Biomedical Advanced Research and Development Authority (‘BARDA’) for the pivotal trial of NovoSorb BTM in full thickness (third degree) burns.
- Passed the mid‑way point for the recruitment of the pivotal trial, with 90 patients currently enrolled.
- Increased sales teams and customer base globally, 861 hospital accounts and 237 staff.
- Progressed the product pipeline for NovoSorb BTM and NovoSorb MTX and developed surgical mesh prototypes for hernia repair.
- Finalised concept design and commenced detailed design of additional, new manufacturing facility in Port Melbourne.
Context for today’s result (you can skip this as it is a little self-indulgent!)
SP action for $PNV is a rollercoaster that sometimes defies belief, bearing little relationship to the business fundamentals. A bit like riding a rollercoaster in the dark, where you cannot see if the next move is a soaring climb, or a plummeting fall that risks bringing the contents from the last fast food stall you visited before the ride back up! Entertainment value is added by Ride Master David Williams – red-jacketed, red-faced, and gesticulating, wildly to “Roll-up. Roll-up” as he waves at you with a 30cm piece of BTM, while CEO Swami in the background cooly explains the genius of the engineering that allows the ride to function, assuring punters of their safety.
$PNV reached its most recent low point in October. This was driven by a mixed market reaction to the growth of the cost base supporting the global acceleration (clearly signalled at the 2022 capital raise), raising doubts as to the path to profitability, not helped by Ride Master DW saying he didn’t care about profits.
However, since that time, four factors have driven a sustained 5-month uptrend of +80%:
1) the release the $8m/($9m record month in December,
2) the January pre-released Trading Result with preliminary bottom line,
3) the record single sales order of $1.2m and
4) broader, macro-risk-on.
But this is a rollercoaster, and we are still some way off the lofty heights of $2.69 reached in the run-up to 1H FY23, so you never know how far the climb continues or whether we temporarily lurch downwards once more before recovering.
Through all this, I try not to let the “Buy, Buy”, “Sell, Sell” trader-analyst-fundies distract me. They’re not much help really with an average Target Price of $1.95 representing a wild range of $1.00 to $2.90 – materially down on 12 months ago ($2.53, $1.90 - $2.90).
My model is at $2.00 ($1.63-$3.30) with my eye clearly focused on the disproportionate upside potential, even though I have also come off my position in Sept-22 ($2.46, $1.62-$3.28).
So, with the scene set, what do I make of today’s result?
My Analysis
On the release David has said: “There is little new here that was not in our 22 January announcement. It was a great half, but we have moved on. There is a lot to talk about that has happened since 31 December, which we expect to talk about during our investor webcast on 27 February.”
In other words “Roll-up Roll-up to the David, Swami and Jan show at 1pm AEST today!
Important Note: My analysis below may differ to what is presented today. In fact, it will, That is because $PNV typically make various adjustments and report underlying numbers in their presentation, whereas I stick to the audited accounts. That said, no-one audits my analysis. So, all care, no responsibility!!
Revenue
There is nothing to add on sales to the detail I gave in my straw on 22-January. Revenue (which includes BARDA) is up 65.6% - a slight acceleration from the PCP. Sales are up 54.9%, with the US up 41.7% and RoW up 122.2%, with sales in several new markets.
With a FY revenue consensus of $101.4m, revenue in H2 needs to hit $52.6m, which would be growth over the pcp of 42.0%. So, how likely is this? Well, H2 growth rates in FY22 and FY23 have been 43% and 56%, respectively. And looking at the last three years, there is no clear 1H / 2H trend. H2 FY24 also has the boost of at least 1 large order to Ukraine valued at A$1.2m. And with the recent impetus in RoW from the expansion of the global sales and marketing footprint, everything points to a strong finish to the year. My model is for FY sales of $105m for the FY. But I am a $PNV bull, so DYOR!
Gross Margin
Gross Margin comes in at 95.9%, compared with 94.5% in pcp. Overall,it is in the usual ballpark of 90-96%. This is expected as the direct fixed costs of the current facilities are recovered over progressively increasing volumes. However, when the new facilities come onstream in FY25, I expect %GM will drop back sharply, as the new facilities have been sized to support sales up to $500m p.a!
Still, compared to the competition in dermal repair, $PNV has an extremely high %GM.
Opex
Opex (excl. D&A) grew 46% from $30.6m to $44.6m, a slower rate than 107% in the PCP. Importantly, it is now growing at a slower rate than revenue. Opex is now 91% of revenue, down from 104% in pcp. Yay!
This moderation was expected for two reasons, First, a major expansion of the workforce occurred during FY23, following the capital raise, to pursue the broader global sales strategy. While expansion has continued in 1H24, there has been a greater focus on execution. The second reason is that the FY23 comparison was distorted due to some items relating to former CEO compensation. In the presentation this is one of the “underlying” corrections that Jan has made.
That said, corporate costs have expanded significantly, given the senior hires indicated above. However, $PNV is not a truly global business, and you need functional heads capable of delviering their roles in that context.
Within Opex, R&D continues to expand. This is important and welcome, as without ongoing innovation $PNV can never become a long-term winner in dermal care. Management seem to be applying capital discipline here, holding R&D/Revenue at 10%, in order to deliver their commitment to getting to profitability.
So, overall, I am very happy with the progression of the Opex profile.
Profit and Cash
By my calculations, EBIT is $1.1m (up from -$3.8m) – an improvement of $4.9m.
NPAT is $2.7m, up from a PCP loss of -$3.8m – an improvement of $6.5m, assisted by the Tax refund of $1.6m.
So, well done David, Swami and Jan and team. You are on track to delivering your commitment at the FY22 Capital raise to be profitable in FY24.
Cashflows align quite well with the financials. We are now just Operating Cashflow positive, at $0.58m compared with -$2.73m in PCP. And by my measure of FCF (which includes all capex), they are close to breakeven at -$0.48m.
It is worth noting that capex has increased from almost nothing to $1.1m, as the build the new production facilities. This should be expected to ramp up significantly over the next 12 months. So, hopefully, management will guide on that in the presentation this afternoon.
The balance sheet is strong with Cash and Equivalents at $45.58m, and debt at $2.2m (current and long term) is negligible and being paid down.
My Key Takeaways
Solidy on track. Continuing strong revenue growth and management demonstrating cost discipline to meet their commitments. May it continue.
Valuation
I’ll update my valuation after the FY24 results. For now, I am content to stay at $2.00 ($1.63-$3.30)
However, I can say that if execution continues in this manner, I'll be upgrading as the downside cases in my model start to fall away.
Disc: Held in RL and SM (with high conviction)
