Equities Commentary

Growth Focus: Polynovo Ltd (PNV)

by Patrick Taylor




Date of Data Capture: 26/03/2020

Name: POLYNOVO LIMITED (PNV)

Classification: Biotechnology

Current Price: $1.55

Market Capitalisation: $1.02 B

Forecast Sales Growth: 77.08%

Yield Estimate: 0%

Consensus Price Target: $2.46

# Covering Analysts: 6

Discount at Current Price: -58.71%

Price Target Trend (3-Month): Up-Flat +10.31%

Signal Timeframe: Quarterly-Weekly-Daily

Trend Bias: Up-Down / Medium-Short

Indicators:
Short-term: Positive
Medium-term: Neutral
Long-term: Positive-Neutral

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• Regenerative skin technology company PNV was a strong growth performer before pricing collapsed on Covid19 panic selling, but retains a strong outlook and directors have been buying.
• Set to become cashflow positive in the next year, PNV is expanding globally, winning major market approvals with aggressive forecasts for gains in revenue, earnings and profits to 2022.
• Technically the stock has broken down with pricing falling through a stop-loss cascade to find support some 60% lower from peak pricing a month ago, this could be a good buying opportunity into a previous growth hot shot.
Support ($): 1.50, 1.25 & 1.00.
Resistance ($): 1.75, 2.00, 2.50, 3.00 & 3.25.


Growth Focus: POLYNOVO LIMITED (PNV)

The primary focus is capital gain - stocks are selected from the ASX Top 500 All Ordinaries Index.

When investors get their fingers burned during adverse market conditions it can induce a psychological aversion to making further investments, and while this seems like simple common sense, it can also limit the ability to make the best out of a bad situation. Instead what we are looking to pick up previously strong, sector-leading companies with excellent growth prospects, bringing us unironically to Polynovo Ltd, as burns-care specialist begins its recovery after falling more than 60% since last month, but retains strong forecasting and excellent growth potential.

Australian-based biotechnology company Polynovo designs, develops and produces medical solutions for burns, hernia and other orthopedic applications, using its patented biodegradable polymer; NovoSorb. These products can be used for drug transfer, antimicrobial protection, and accelerating wound healing, are available in various formats like films, foams and coatings. NovoSorb is able to be applied within a matrix to physically close wounds, being applicable to even full-thickness burns, encouraging fresh dermal layer growth before the matrix degrades revealing new natural skin.

The company remains early-stage in so far that it is not expected to turn cash flow positive until next year, but this company is advancing fast. Reporting shows strong growth with sales revenue almost doubling in the last year, with this same robust sales expansionary trend seen since 2016 – and is expected to continue through to 2022. This kind of strength attracts favourable attention and we can see this reflected in the strong majority positive analyst sentiment and almost 60% discount to consensus price targets.

The company retains a good cash position as it approaches its crossover to positive earnings, and is engaged in a rapid product rollout with sales teams and facilities being built and expanded across Australia, New Zealand, Asia, the US and Europe. All of these markets are only just opening up and there remain opportunities for expansion internally within the stated regions, as well as externally through the many other global markets yet to be approached.

The price action of recent weeks looks as expected and is dominated by a cliff-drop selling collapse beginning late last month before cutting values in half before finding deep price support, and has rallied back up to minor resistance around $1.50. We expect it to test higher towards the major resistance structure around $2.00, with plenty of further targets above, stretching back towards old highs past the $3.00 ceiling. Right now we see good momentum in the short-term and if we are right it could be a good time to have some fake skin in the game.

Growth Focus: Medical Developments International Ltd (MVP)

by Patrick Taylor




Date of Data Capture: 18/03/2020

Name: MEDICAL DEVELOPMENTS LTD (MVP)

Classification: Pharmaceuticals

Current Price: $4.76

Market Capitalisation: $324 M

Forecast EBITDA Growth: 54.96%

Yield Estimate: 0.81%

Consensus Price Target: $10.14

# Covering Analysts: 3

Discount at Current Price: 53%

Price Target Trend (3-Month): Up +41.23%

Signal Timeframe: Quarterly-Monthly-Daily

Trend Bias: Up-Down / Long-Short

Indicators:
Short-term: Positive-Neutral
Medium-term: Neutral-Negative
Long-term: Positive-Neutral

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• MVP offers an unexpected entry opportunity here after pricing crashed 60% in 4 weeks due to Covid19 panic – but it still retains a favourable outlook with very strong forecast growth ahead.
• Performance has been strong with excellent general growth-boosting earnings up over 54% last year - this year growth is likely to be slightly softer - but impact from the pandemic should be limited, and analysts expect extremely strong growth in sales, earnings and profit out to 2022.
• Pricing shows a catastrophic fall from fresh all-time highs reached 4 weeks ago – the outcome of the stop-loss cascade gives an excellent discount with price targets still 100%+ higher.
? Support ($): 4.75, 4.50, 4.25, 4.00 & 3.75.
? Resistance ($): 5.00, 6.00, 7.00, 9.00 & 10.00.


Growth Focus: MEDICAL DEVELOPMENTS LTD (MVP)

The primary focus is capital gain - stocks are selected from the ASX Top 500 All Ordinaries Index.

With markets giving investors plenty of pain at the moment, we are taking a fresh look at one of our favourite biotech stocks; Medical Developments Ltd (MVP), as the maker of the Penthrox analgesic gets sharply sold off in the Covid19 panic - though stills carries excellent potential for continued global growth.

Medical Developments is a leading emergency medicine solutions company that manufactures and distributes pharmaceutical drugs along with medical and veterinary equipment. The company is best known for its well-regarded analgesia product Penthrox or the ‘Green Whistle’ which is non-opioid, non-addictive and inhaled to give strong and fast acting pain relief.

Based in Australia, the company is currently expanding aggressively into international markets, winning approval access to China and Russia towards to the end of 2019, causing significant share price strength. The company remains in expansion mode, and is currently progressing approvals in South Korea and the US, which should be a major opportunity for the company, with further progress expected this year for markets in Bosnia, Hungary, Greece, Malta, The Netherlands and Thailand.

Obviously the short-term impact of the Covid19 pandemic is causing the steep drop in pricing, but this may be restricted only to a very short timeframe. The company issued a specific limited-impact statement on its outlook and isn’t expecting any supply shortfall, is well-stocked and isn’t seeing any drop-off in demand. We should have been expecting a strong year this year, with 2019 reporting showing Australian sales up 18%, European sales up 35% and UK sales up 42% - and this strong growth trend was expected to continue out to 2022.

With pricing now beneath $5 again we should be starting to see the stock finding support as bargain hunters wake up to the fact the price of this premier growth stock has been cut in half, but it’s full potential remains. This is also seen reflected in the majority positive analyst sentiment and deep discount to target prices. We don’t want to let this disaster go to waste, and even though we are yet to see the bottom of this dip we are looking to begin buying here and follow into fresh strength.

We believe this current price crash is a rare opportunity to purchase a unique medical company that is rapidly expanding internationally and showing strong global growth – and at these prices we think an investment in MVP at these levels should have you feeling better soon.

Growth Focus: Appen Limited (APX)

by Patrick Taylor



Date of Data Capture: 11/02/2020

Name: APPEN LIMITED (APX)

Classification: Software & IT Services

Current Price: $26.77

Market Capitalisation: $3.24 B

Forecast EBITDA Growth: 37.73%

Yield Estimate: 0.37%

Consensus Price Target: $28.79

# Covering Analysts: 8

Discount at Current Price: 7.55%

Price Target Trend (3-Month): Up-Flat -0.99%

Signal Timeframe: Monthly-Weekly-Daily

Trend Bias: Up-Flat / Long-Medium

Indicators:
Short-term: Positive-Neutral
Medium-term: Positive
Long-term: Positive

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• Fast growing tech stock APX is emerging from a recent medium-term consolidation and looks likely to continue higher on strong performance, and forecasts for continued growth out to 2021.
• Strong sales and earnings data last year helped drive strong gains and while growth is expected to slow a little – it is set to remain robust going forward, driven by expanding sales and margins.
• Pricing reflects the rapidly expanding revenue numbers and it has been a year since the last minor pullback - we expect recent weakness to also be a favourable entry opportunity, with excellent positive momentum signalling here.
Support ($): 20.00, 22.00, 24.00 & 26.00.
Resistance ($): 28.00, 30.00, 32.00 & clear.


Growth Focus: APPEN LIMITED (APX)

Our primary focus here is capital gain, we will select our stocks from the ASX Top 500 All Ordinaries Index.

If knowledge truly is powerful, then we are right to take a view on Appen Ltd (APX) as the artificial intelligence specialist moves higher into a potential new longer-term uptrend on strong performance and backed by very attractive forecasting.
Listed since the early stages of 2015, Appen provides data solutions services for technology clients across the globe with over 600 staff spread from the Asia Pacific to the UK and US. Some of the applications of their technology include digital assistants and chatbots, search engine recommenders, and systems for fraud protection. While there exists huge commercial scope for growth within the field of machine learning, there also exists a very significant governmental and state interest in developing AI technology and the efficiencies it offers.

To put this into perspective, the market of AI services was valued at $643M in 2016 and is projected to reach as much as $36B by 2025. That gives APX enormous potential for organic growth, already well-supported by the strong reporting figures of recent years, with sales earnings and margins increasing rapidly. Of particular note is the size and strength of earnings gains seen in the US market, which should remain a core focus for future growth.

Appen has been making a habit of upgrading its earnings guidance, and last reporting showed revenue up 60%, earnings up 81%, margins up 16% and profits up 67% - with forecasting showing solid expectations for similarly strident gains seen through to 2021. Despite the rapid rise of the share price, the stock remains under consensus price targets, which have been steadily increasing over the last 4 years. This favourable view is reinforced by a strong majority positive aggregate analyst sentiment, with no negative views at current levels.

Pricing history shows APX climbing dramatically higher since listing in early 2015, though this incredibly strong performance has been played out through a series of medium-term uptrends. In that time, there have been only intermittent consolidations, when the share price overtook the company’s considerable underlying momentum, ultimately providing fresh entries to those with the patience to wait for them.

Here we believe we have another opportunity with pricing falling from $32 to $20 during the second half of 2019, eventually moving up from its support base to break linear resistance just last month. With momentum building and signalling turning positive again, we are looking to follow the smart money into this world leader in artificial intelligence.

Growth Focus: Saracen Mineral Holdings Limited (SAR)

by Patrick Taylor



Date of Data Capture: 29/01/2020

Name: SARACEN MINERAL HOLDINGS LTD (SAR)

Classification: Gold Mining

Current Price: $3.96

Market Capitalisation: $3.37 B

Forecast EBITDA Growth: 126.36%

Yield Estimate: 0.97%

Consensus Price Target: $4.17

# Covering Analysts: 10

Discount at Current Price: 5.30%

Price Target Trend (3-Month): Up +10.90%

Signal Timeframe: Quarterly-Monthly-Weekly

Trend Bias: Up-Flat / Long-Medium

Indicators:
Short-term: Positive-Neutral
Medium-term: Positive
Long-term: Positive-Neutral

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• Rallying gold has SAR moving higher after breaking major resistance this month, looking like it is on the cusp of a greater uptrend and backed by strong performance and forecasting.
• Strong earnings growth in 2018 gave way to softer gains in 2019, but analysts expect further recovery with aggressive expectations for much higher sales, margins and profits this year.
• SAR has a history of making strong rallies followed by consolidations, and we see recent strength as an emerging new longer-term uptrend, combining well with shorter-termed positive signalling across multiple timeframes.
Support ($): 3.75, 3.50, 3.25 & 3.00.
Resistance ($): 4.00, 4.25, 4.50 & clear.

Growth Focus: SARACEN MINERAL HOLDINGS LIMITED (SAR)

Our primary focus here is capital gain, we will select our stocks from the ASX Top 500 All Ordinaries Index.

You don’t have to scratch too far beneath the surface to find deep value in Saracen Holdings Ltd, as the gold miner prepares to more than double production after buying half of the world-famous Kalgoorlie ‘Super Pit’, and with good strength being shown in the gold price, its potential is shining through here.

Starting out on the ASX in 1992, Saracen has carved out a good long-term track record of gold production and asset accumulation within Western Australia, with operations focused in the Leinster/Kalgoorlie goldfields. Acquiring of 50% of the Super Pit gold mine from Barrick in 2019 will greatly boost production, and is now joint venture partners with Northern Star, while Newmont Goldcorp remains in charge of operations. The current mine life stretches to 13 years, though this will be a major focus within the ongoing expansion and exploration program applied to all assets.

Already showing excellent organic growth, the company saw record production of 120koz+ last year, with current ore stockpiling at 3.3Moz. Group production estimates for 2020 are around 500koz+ and this is expected to increase to 600koz+ in 2021. The company has secured favourable risk mitigation with 500koz+ gold hedging at AUD$1997/oz v AUD$1098/oz current cost of production, which illustrates the robust margins currently being achieved.

Analysts maintain a strong positive majority view on the stock, with no negative sentiment, and at the moment see SAR trading at a discount to rising consensus target pricing. The company has produced strong earnings growth since 2017, but with the extra acquired output this is now set to increase dramatically in 2020. This pattern for strong gains across sales, earnings and profit is expected to stretch further out to 2021. The 2019 acquisition was mostly covered by capital raising, with the smaller residual being debt-funded, though the company maintains good cash and liquidity, with potential for asset sales and has already started early debt repayment.

Saracen tends to cycle through rallies and pullbacks within a greater long-term uptrend. More recently pricing shows the stock moving strongly into fresh all-time highs in 2019, before moving into a consolidation phase, exacerbated by the capital raising. After falling 40% by late 2019 the stock began to rally off a $3 support base and by early 2020 had broken through linear resistance and is now continuing higher within a newly emerging medium-term uptrend. With fresh strength pushing pricing higher it looks like we should have a favourable entry here, and we wouldn’t want to pit ourselves against further gains.

Growth Focus: PSC Insurance Group Limited (PSI)

by Patrick Taylor



Date of Data Capture: 25/11/2019

Name: PSC INSURANCE GROUP LIMITED (PSI)

Classification: Insurance Brokers

Current Price: $2.95

Market Capitalisation: $800 M

Forecast EBITDA Growth: 16.40%

Yield Estimate: 2.86%

Consensus Price Target: $2.80

# Covering Analysts: 2

Premium at Current Price: 5.08%

Price Target Trend (3-Month): Flat +-0%

Signal Timeframe: Quarterly-Monthly-Daily

Trend Bias: Up-Flat / Long-Medium

Indicators:
Short-term: Positive
Medium-term: Positive-Neutral
Long-term: Positive

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• PSI is continuing its recovery after emerging from a minor year-long consolidation five months ago, and this new-found strength is well supported by good reporting and forecasting.
• Performance has shown steady and strong growth from 2015, and this is expected to continue out to 2022 with recent acquisitions in the UK and US paving the way for future growth.
• Pricing shows a healthy move through major resistance structure in June, and then again with minor resistance falling in the last few weeks, the stock is building momentum here, with buy signals present across multiple timeframes.
Support ($): 2.90, 2.80, 2.70, 2.60 & 2.50.
Resistance ($): 3.00, 3.10, 3.20 & clear.


Growth Focus: PSC INSURANCE GROUP LIMITED (PSI)

Our primary focus here is capital gain, we will select our stocks from the ASX Top 500 All Ordinaries Index.

When investing it is necessary to manage risk, and take steps to protect against potential worst-case scenarios, so it seems fitting that we are taking a closer look at PSC Insurance Group (PSI) as the growing underwriting specialist continues higher on good performance and looks like it could be a chance worth taking.

Emerging on the ASX in late 2015, PSI is a diversified insurance services company, operating throughout Australia, New Zealand, the United States, and the United Kingdom. Conducting business through brands like PSC Insurance Brokers, Chase Underwriting and Paragon the company provides services to more than 90,000 customers. The company has been seeing broad-based organic growth but also has a very active acquisition strategy, most recently seen expanding market share in the US and UK.

Performance has been strong and shows increasing revenue, earnings and profits up strongly since 2016, also supporting a fair dividend, though we are primarily attracted to the company for its growth prospects. And indeed the strong trend of expansion is set to continue with forecasts showing expectations out to 2022, primarily driven by strong sales and earnings growth. Analyst coverage is thin, so while there is a slight premium to consensus targets, these valuations are largely static and don’t correlate well to price performance.

Pricing history shows a brief but successful time on the market for PSI, where strong longer-term rallies in 2016 and 2017 were followed by medium-term consolidations before the stock plateaued-out in 2018. Since then the stock has tested overhead resistance at $3.20 twice last year before eventually moving into downtrend taking prices 30% lower by early 2019. Emerging from this constructive base 6 months ago we now find the stock crouched beneath overhead structural resistance at $3, but with good longer-term momentum building, we think they look good here.

With an attractive combination of strong organic growth and an acquisition strategy carving out international market space we believe PSI looks good for an entry here, and if expected gains come through as expected, this expanding insurance company could have you covered.

Disclaimer

This report was produced by Taylor Securities Pty Ltd, which is a Corporate Authorised Representative (Number 414063) of Bespoke Portfolio Pty Ltd (AFSL 341991). Taylor Securities and Patrick Taylor (Representative number 414064) have made every effort to ensure that the information and material contained in this report is accurate and correct and has been obtained from reliable sources. However, no representation is made about the accuracy or completeness of the information and material and it should not be relied upon as a substitute for the exercise of independent judgment. Except to the extent required by law, Taylor Securities and Patrick Taylor does not accept any liability, including negligence, for any loss or damage arising from the use of, or reliance on, the material contained in this report. This report is for information purposes only and is not intended as an offer or solicitation with respect to the sale or purchase of any securities or financial products. The securities or financial products recommended by Taylor Securities and Patrick Taylor carry no guarantee with respect to return of capital or the market value of those securities or financial products. There are general risks associated with any investment in securities or financial products. Investors should be aware that these risks might result in loss of income and capital invested. Neither Taylor Securities and Patrick Taylor nor any of its associates guarantees the repayment of capital. WARNING: This report is intended to provide general financial product advice only. It has been prepared without having regarded to or taking into account any particular investor’s objectives, financial situation and/or needs. Accordingly, no recipients should rely on any recommendation (whether express or implied) contained in this document without obtaining specific advice from their advisers. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. Where applicable, investors should obtain a copy of and consider the product disclosure statement for that product (if any) before making any decision.