Avita Medical Ltd (RCEL)

[Fmello]

Saw this on the Hot Copper thread:

Morningstar valuation $7
(Australian)Analyst Comment

No-moat Avita's first-quarter fiscal 2022 was largely in line with our expectations, and we keep our AUD 7 fair value estimate. Commercial revenue increased 3% sequentially to USD 6.9 million, just 1% below guidance of USD 7.0 million. Management cited that vaccination requirements and fatigue have led to hospital staffing challenges, with some nursing staff experienced in its RECELL device choosing to retire early or become travelling nurses. This is expected to impede RECELL utilisation in the near term, with second-quarter fiscal 2022 commercial revenue guidance of USD 7.0 million implying just 1% sequential growth. We cut our fiscal 2022 U.S. revenue forecast by 8% to USD 37 million, still assuming a stronger second half due to higher contributions from paediatric and outpatient settings. Offsetting the negative valuation impact and weaker USD was an acceleration of enrolment in Avita's soft tissue reconstruction trial and solid gross margin expansion. We think current nursing staff challenges are overshadowing clear features in the result. Revenue from Avita's top 20 accounts grew 8% sequentially, highlighting that experienced teams with lower staff turnover are continuing to increase their utilisation of RECELL. Training sessions have significantly stepped up to help alleviate the current shortage in experienced nursing staff. Second, recruitment in Avita's soft tissue reconstruction trial is nearing completion faster than expected, with 89% of subjects now enrolled versus 55% last quarter. We now credit soft tissue reconstruction revenue from fiscal 2024 rather than fiscal 2025 prior, with the firm expecting approval by the end of calendar 2023. Group gross margin also expanded roughly 300 basis points to 84.5% on the prior corresponding period, driven by increased production at its Ventura facility and lower shipping costs. We leave our long-term 85% gross margin forecast unchanged but lift our fiscal 2022 gross margin forecast to 83% from 81% prior.