In 2019, the S&P/ASX 200 (INDEXASX: XJO) increased nearly 22%. Avita Medical Ltd (ASX: AVH) was the star performer on the index, up more than 700% for the year. Polynovo Ltd (ASX: PNV), EML Payments Ltd (ASX: EML), and Fortescue Metals Group Limited (ASX: FMG) rounded out the top 4.
Here we take a look at what we can expect from these shares in 2020.
Avita Medical
Avita Medical Ltd shares soared 712% from 8 cents in January 2019 to 65 cents at the end of the year. Avita Medical is a regenerative medicine company specialising in spray-on skin therapy. Sales of Avita's lead product, the RECELL System, increased 60% in the September quarter.
The RECELL System is currently used to treat burn wounds but is also being assessed for use in the treatment of vitiligo, traumatic wounds, scar reconstruction, and for aesthetic indications. Following approval for use in the United States (US) in September 2018, sales of the RECELL system reached $4,583,000 in the September quarter. Total revenue in the September quarter was $7,900,000, an increase of 165% over the prior corresponding period.
More than 50% of US burn surgeons and burn centres have now been trained on the system and 56 of 132 US burns centres have placed orders. Avita estimates the US market to represent an opportunity valued at $2 billion. In 2020, Japanese regulatory approval for the use of the RECELL System is expected, while in the US, clinical studies will be undertaken using the system in paediatric care, soft-tissue repair, and the treatment of vitiligo. An announcement regarding a collaboration using the system for rejuvenation is expected in 1H20. Capturing just 5% of the skin rejuvenation market could represent a >$500 million opportunity.
In November, Avita raised $120 million in equity capital via a placement of 203,389,831 shares at 59 cents per share. Funds are earmarked for the pipeline development of new indications, including optimising support for clinical trials and development projects, as well as the company's continued US growth. The company has confirmed that new generation products are planned that enhance ease of use and support the adoption of new indications. These generation 2 systems should support office-based procedures and target applications in cell and gene therapy.
Polynovo Ltd
Polynovo shares increased 228% over 2019 from 70 cents in January to $1.97 in December. Polynovo is a medical device company that is focused on developing and commercialising products using their unique polymer technology. Their Novosorb Biodegradable Temporising Matrix (BTM) product is an implantable dressing that can be integrated into the body as it heals.
Polynovo shares moved higher in December following the announcement the Novosorb BTM product had been granted a certificate of conformance (CE mark) approval for sale throughout the UK, Ireland, and the European Union. The company reports it already has strong brand recognition and awareness of its clinical success in these markets via international conferences, publications and peer interactions. Following the White Island volcano tragedy, the company announced it had supplied the Novosorb BTM product to 3 hospitals in New Zealand and 2 in Australia. The product, it said, mitigates some of the serious challenges involved in treating mass trauma and burns.
Sales of Novosorb BTM increased from $1.7 million in FY18 to $9.3 million by FY19. Guidance for FY20 has been in the region of $12 million, however the company is seeing growth in all markets. In general the Polynovo is seeing month on month growth and expects the sales run rate to increase as the months go on. Growth in the US business is very strong and the company reports that its Novosorb BTM product is changing clinical practice in many areas. The product can be used in burns and trauma treatment and surgical reconstruction and plans are in motion to apply the product in hernia and breast treatments.
Polynovo has good profit margins and growing sales, with good cash flow and declining cash burn. It is close to its objective of breaking even this year. The current focus remains on aggressively pursuing market penetration and sales growth. The company has raised the prospect of raising capital to fuel growth but concluded additional working capital is not currently required – they are confident new sales staff can quickly pay for themselves and earn profits. Whether additional capital is required for R&D is a work in progress.
EML Payments Ltd
The EML Payments share price increased over 200% from $1.48 in January to $4.54 in December. EML is a payment solution provider that provides gift card and incentive programs, reloadable value cards, and virtual accounts for business payments.
In the 5 years to FY19, EML's earnings before interest tax depreciation and amortisation (EBITDA) grew by 82% on a compound annual basis. EBITDA was $29.1 million in FY19, up from $20.8 million in FY18. Of that, 68% was organic growth and 32% was attributable to an acquisition. Revenue of $97.2 million was earned in FY19, up 37% from the previous year. Approximately 87% of revenue was generated from recurring revenue streams, up 26% on the previous period. Net profit after tax (NPAT) was $8,450,000 up 283% from the previous year.
EML has made 6 acquisitions since 2014, including 2 in 2019. In November, EML agreed to acquire Prepaid Financial Services Ireland Limited (PFS) a provider of white label payments and banking-as-a-service technology. PFS provides payments and digital banking capabilities, e-wallets, and payout/distribution programs. PFS operates in 24 countries and supports 26 currencies.
EML reported 1QFY20 revenue of $23.2 million up from $17.2 million the prior corresponding period. Gross debts under the company's incentive programs, cards, and virtual accounts exceeded $3.2 billion, an increase of 74% over 1QFY19. The group expects EBITDA to be in the range of $38.5 million to $42.5 million in FY20, which would represent growth of 28–43% over FY19 (excluding acquisition costs).
Fortescue Metals Group Limited
Shares in Fortescue bounced over 157% in 2019, ending the year at $10.69 from $4.15 in January. The miner was assisted by strong iron ore prices which turbocharged shareholder returns. Fortescue delivered NPAT of US$3.2 billion in FY19 and paid total dividends of $1.14 per share. The dividend payout ratio was 78%.
The Chinese steel industry grew strongly throughout the year with steel production up over 8%, according to reporting by the Australian Financial Review (AFR). Supply was constrained by the Vale damn disaster in January and Chinese steel mills responded to profit pressures by taking more of Fortescue's lower grade, lower priced product. Fortescue nonetheless intends to move up the value chain with an investment in a higher grade West Pilbara blend.
At 1QFY20 Fortescue reported 42.2mt in shipments for the quarter with average revenue received of US$85dmt. Fortescue had net debt of US$0.5 billion and cash on hand of US$3.4 billion.
