I was also intrigued by the Morningstar report, being fascinated by the disparity of analysts’ reports on just about every share in existence. I’ve never drilled down into a particular analyst before, but now I am also intrigued by the credentials of the analyst (and as I saiid, I’ve never looked into background of individual analysts before so I’m in no position to make comparisons):The analysis is by Shane Ponraj, and I have pasted his analysis in full at the bottom of this post. Morningstar provides the following information about Shane:
Shane Ponraj is an equity analyst specialising in the healthcare sector for Morningstar Australasia Pty Ltd, a wholly owned subsidiary of Morningstar, Inc.Before joining Morningstar in 2019, Ponraj spent more than four years working for boutique Australian fund manager Renaissance Asset Management.Ponraj holds a Bachelor of Engineering (mechatronic) and a Bachelor of Commerce in finance from the University of Sydney. He also holds the Chartered Financial Analyst® designation.
What would have given me more reassurance about Mr Ponraj’s analysis would have been firstly a referencing of his medical-related commentary, given his own absence of a medical background. For example, shouldn’t he referenced the source of his comment: “concerns over the durability of intangibles related to NovoSorb”? (And even explained the phrase.)
And examples of the companies from whom Polynovo “is underestimating competitive pressures” would be more helpful than an abstract comment.
As I said, I’m just getting my head around the whole share investing game, but I know if someone provided me with a report like that and expected me to rely on it, I’d be asking for a lot more substance to the analysis (but maybe I’m overestimating the creds of the whole advisory sector?)
Mr Ponraj’s analysis is below:
We initiate coverage on Polynovo PNV with a fair value estimate of AUD 1.00 and with shares currently appearing overvalued, trading at a 26% premium. We suspect the market is likely too optimistic on the speed and extent of Polynovo’s commercial rollout and is underestimating competitive pressures. We think the market is also overly excited about potential new indications of Polynovo’s NovoSorb technology. While broader indications including hernia repair and breast augmentation and reconstruction are being considered and would expand Polynovo’s addressable market, these are still very early in the development phase. Our Uncertainty Rating for Polynovo is Very High, and we assign a Standard Capital Allocation rating.Polynovo’s main product, NovoSorb BTM, is a patented biodegradable synthetic scaffold to support the regeneration of the dermis when lost through surgery, trauma, burns, or other causes of tissue loss. Polynovo’s current strategy revolves around increasing its sales staff, expanding its geographical footprint, and exploring new uses for its NovoSorb technology beyond the dermal substitute market. With its geographical reach, the firm estimates its products are available to 800 million people as of fiscal 2023, but highlights that the global market is underserved.We do not award Polynovo an economic moat given low switching costs for clinicians to adopt competing products and concerns over the durability of intangibles related to NovoSorb. We think Polynovo will have little to defend its position when faced with stronger competition in the coming decade, particularly when its key patents expire in fiscal 2028. Financial success in medical devices is also dependent on distribution networks, hospital relationships, brands, and marketing expertise that larger competitors may already have and can utilize more effectively.
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