Forum Topics PNV PNV Morningstar call

Pinned straw:

Added 4 months ago

I have no opinion on the accuracy, but thought I’d throw it out there if people would like to compare assumptions that go into the valuation:

Our fair value estimate for Polynovo is $1.05 per share and assumes the company is profitable from fiscal 2024 onward.

We forecast a five-year group revenue compounded annual growth rate ("CAGR") of 26% forward to fiscal 2028 versus a trailing two-year revenue CAGR of 50%. This is driven by Polynovo’s key US geography where we forecast a five-year revenue CAGR of 21% for the region.

We expect the firm increasing its sales staff to support market share gains. In addition, we expect the recent product launch of NovoSorb MTX to increase penetration within existing hospital accounts given its broader applications. Our forecast five-year revenue CAGR for geographies outside the US is 40%. This is driven by recent entries in India, France, Spain, Canada, and Hong Kong, as well as planned entries into China and Japan. As such, we forecast revenue contribution from the US to drop to 65% of group sales in fiscal 2028 from 79% in fiscal 2023.

On the profitability front, we expect group midcycle operating margins to settle at around 35% by fiscal 2033. We forecast Polynovo’s maiden profit in fiscal 2024 and margin expansion from operating leverage. Our estimates deliver EPS growth of 18% at midcycle. We forecast average annual capital expenditures of roughly AUD 6 million over the next 10 years, or 3% of group sales. We also factor $25 million in capital expenditure over fiscal 2025 and fiscal 2026 to fund a new manufacturing facility which has capacity to service an additional AUD 500 million in annual sales

mikebrisy
Added 4 months ago

Thanks for sharing @Chagsy - look like a similar set of datapoints to Ord Minett to get $1.05!

Well, their historical Revenue CAGR 2021-2023 is correct, So at least we have one area of agreement!

5-year CAGR of 21% for US is pretty weak, given the last several years of 40%-to-60%.

International 5-year CAGR of 40% is also pretty pessimistic both given history, the acceleration in the UK beyond burns, the fact that EU countries are starting from a VERY low base, the fact that we are yet to see a reported figure for India, without even mentioning wider and growing number of countries buying BTM without a sales and marketing presence.

Their 5-year revenue CAGR 2023-2028 of 26% presumably has to start with the 2024 growth of 57% and therefore decline fairly rapidly year on year. In my current model, my revenue growth rates in 2027 range from 23% to 31% across my various scenarios. While I assume USA matures, the international expansion has a lot further to run.

On % Operating Margin settling at 35% by fiscal 2033, my range of scenarios has % Net Margin ranging from 29.7% up to as high as 35.9%.(This is one area I am less confident on, as we need to see more on how the operating expense structure evolves, which is why I am waiting for the FY results to update my model.)

I'd have to be very pessimistic to get PNV looking anything like this, even in my worst case scenario.

I'm curious as to why they are so pessimistic on revenue growth. Its as if they have 1) anchored on the 2021 growth numbers, when sales reps couldn't get access to hospitals and then 2) missed the acceleration that took place after the late 2022 capital raising, which (among other things) funded the US acceleration and global rollout.

If Moningstar and Ord Minett are right, then the sales trajectory needs to start diverging markedly from the "consensus" view during FY25. So, I guess we will all see soon enough.

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Rick
Added 4 months ago

@Chagsy I’m assuming this is correct “Our fair value estimate for Polynovo is $1.05 per share”. That’s very bearish given the current share price!

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