In one of those mildly devastating hits I didn’t see coming, the CEO and Chairman of Polynovo (ASX: PNV) had a falling out recently. Unfortunately for me, the company did not acknowledge the problem until the details were leaked to the Australian, after I had already published my coverage of the Polynovo H1 FY 2025 results. That outlet revealed:
“So alarmed were PolyNovo officials by the allegations leveled at Williams that they engaged barristers Philip Crutchfield KC and Katherine Brazenor to interview staff and provide recommendations to the board. The advice was that Williams ought to step aside as chair, which the board accepted…”
Basically, my reading of the situation is that the CEO couldn’t bear to work with Williams for any longer with the company announcing the next day that the Chief Executive Officer, Mr Swami Raote, requested “to cease his employment with PNV effective June 2025 at the end of his contractual notice period and to step down as Chief Executive Officer effective from an earlier date.”
Or, as The Australian put it: “…the company is thoroughly aware of just how distracting and dysfunctional this leadership crisis has become.”
As all of this emerged, I had just reiterated that I found the stock attractive after the PolyNovo H1 FY 2025 results, and I did not want to sell Polynovo before I had a chance to calmly consider this unexpected kerfuffle. I also didn’t want to give in to the panic as the stock price plunged on the back of subsequent announcements.
You see, the next day the board made it clear the Chairman David Williams would stay in place, and then a few days after that the company confirmed the CEO would leave.
Now, my view of David Williams is that he is a truly intelligent and capable person. He has decades of experience, extensive networks, and a tonne of money. He has succeeded as an investor time and time again. And yet, as his success has grown, perhaps his regard for those below has not kept up.
Just a few weeks ago I considered Williams one of the best operators on the ASX, but that is no longer the case.
As a result, I have taken the view that my hopes for the company will not come to pass. Sure, almost all the reasons why I bought the stock remain in place, but it seems I massively overestimated the competence of the board. Ultimately, I still believe that Polynovo is an undervalued stock and in the fullness of time it will reward shareholders, on the balance of probabilities.
However, crucially, Polynovo no longer satisfies my requirement that I have full confidence in the competence of the leadership team. Not only has the Chairman given me the impression that he can’t manage his relationships well, but the rest of the board has given me the impression that they cannot manage the Chairman.
Therefore, I would now consider my Polynovo thesis busted, and I would consider the stock a speculative hold at best. As I write, Polynovo shares have just opened at $1.265, and I would hypothetically take my medicine and sell the stock at this price. However, given I have just published this article I cannot sell the shares for at least two days.
I don’t know what Polynovo shares will trade at next week, but I do know I would prefer to use my capital for other purposes, such as investing in companies that have more stable leadership teams. Therefore, I will sell my PolyNovo shares at some point from next week. I can’t say the exact timing, given I don’t know what the share price will be, and I tend not to buy or sell in a rush, and I often enter and exit a position over multiple transactions. But I can say I am no longer intend interested in PolyNovo as a long-term investment, I now consider it nothing more than a speculative trading stock, and so I will inevitably sell my shares at some point, probably shortly!
I am extremely sorry for the mistake. I wish I could avoid these kinds of situations, but alas, this is the kind of risk that comes with investing in individual stocks. You just never know what could emerge.
Disclosure: The author of this article owns shares in PNV and will not trade PNV shares for at least 2 days following the publication of this article. This article is not intended to form the basis of an investment decision and is not a recommendation. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Ethical Investment Advisers Pty Ltd (ABN 26108175819) (AFSL 343937).
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