Why this broker sees little upside to the Polynovo (ASX:PNV) share price right now

Bell Potter has cut its Polynovo Ltd (ASX: PNV) share price target after the company missed its growth forecasts. Here's the rundown.

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The Polynovo Ltd (ASX: PNV) share price was one of the best performing ASX 200 healthcare shares in 2020, running from $1.97 to $3.88.

But when the company's share price started to turn in the wrong direction, it fell and it fell fast. 

It wasn't just the trading update

Polynovo released a trading update on 12 January 2021 which saw its shares crash 13% on the day.

But it wasn't just the trading update to point the finger at for Polynovo's significant share price decline. Its shares had already slumped from $3.88 to $3.39 or 12% before the announcement, almost a tell tale of the bad news brewing. 

Furthermore, the S&P/ASX 200 Health Care (ASX: XHJ) has also fallen 4.3% in the new year. Adding further insult to injury for the healthcare sector.  

Bell Potter disappointed with first half FY21 trading update 

Bell Potter reports: "Polynovo announced a relatively disappointing trading update, with 1H FY21 sales growth of 31% vs the pcp well below our forecasts, consensus and management expectations".

In the company's November 2020 annual general meeting, Polynovo's NovoSorb BTM product experienced very strong growth from $9.3 million in FY19 to $19.06 million in FY20.

Polynovo managing director Paul Brennan said at the time the company would "continue to harness this momentum to double our revenues again in FY21".

Bell Potter's report notes that "expectations were broadly that sales would double in FY21 vs FY20".

It noted that management also "tempered expectations around growth for the second half given the uncertainty in patient volumes". 

The broker did highlight some small positives including management's strong update on new accounts, with successful customers additions and ongoing efforts to drive growth with integrated distribution networks. Those new customers may start to become more active users of Novosorb BTM in the coming months, especially if patient volumes recover well in a post-vaccine environment. 

Overall, Bell Potter reduced its Polynovo share price target from $3.20 to $2.90 with a hold rating. The Polynovo share price is trading up 4.48% at $2.80 at the time of writing. 

Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of POLYNOVO FPO. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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