Evolva — Another good performance

Evolva (SW: EVE)

Last close As at 28/03/2024

0.10

0.00 (0.00%)

Market capitalisation

113m

More on this equity

Research: Consumer

Evolva — Another good performance

Evolva’s H119 results continue to validate its strategy to reduce operating costs and increase its focus on customers. Innovation continues to lead to the expansion of both existing markets and ingredient systems, with a new product launch now expected in FY20. This is not built into our forecasts as the product remains unknown. The contribution from EverSweet is expected to increase towards the end of FY19 when a new facility will come on stream, and all questions raised by the US Environmental Protection Agency (EPA) regarding nootkatone approval in pest control should be answered by mid-September. Our product forecasts remain broadly unchanged, but our fair value reduces slightly to CHF0.51/share (from CHF0.53/share) mainly due to FX movements, still providing substantial upside to the current share price.

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Consumer

Evolva

Another good performance

H119 results

Food & beverages

27 August 2019

Price

CHF0.184

Market cap

CHF142m

Net cash (CHFm) at 30 June 2019

45.3

Shares in issue

774m

Free float

100%

Code

EVE

Primary exchange

Swiss Six Ex

Secondary exchange

OTC US

Share price performance

%

1m

3m

12m

Abs

5.7

(14.0)

(34.2)

Rel (local)

8.5

(14.5)

(38.7)

52-week high/low

CHF0.302

CHF0.138

Business description

Evolva is a Swiss high-tech fermentation company. It has a proprietary yeast technology platform that it uses to create and manufacture high-value speciality molecules for nutritional and consumer products.

Next events

FY19 results

March 2020

Analysts

Sara Welford

+44 (0)20 3077 5700

Russell Pointon

+44 (0)20 3077 5700

Evolva is a research client of Edison Investment Research Limited

Evolva’s H119 results continue to validate its strategy to reduce operating costs and increase its focus on customers. Innovation continues to lead to the expansion of both existing markets and ingredient systems, with a new product launch now expected in FY20. This is not built into our forecasts as the product remains unknown. The contribution from EverSweet is expected to increase towards the end of FY19 when a new facility will come on stream, and all questions raised by the US Environmental Protection Agency (EPA) regarding nootkatone approval in pest control should be answered by mid-September. Our product forecasts remain broadly unchanged, but our fair value reduces slightly to CHF0.51/share (from CHF0.53/share) mainly due to FX movements, still providing substantial upside to the current share price.

Year end

Revenue (CHFm)

PBT*
(CHFm)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/17

6.8

(40.9)

(7.0)

0.0

N/A

N/A

12/18

8.9

(25.4)

(3.0)

0.0

N/A

N/A

12/19e

10.9

(15.8)

(2.1)

0.0

N/A

N/A

12/20e

18.2

(10.4)

(1.4)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Strategy

The company’s strategy continues to be focused on growing existing markets and improving customer relationships, having moved away from the phase of significant investment into R&D of new products. Following management’s decision to remain asset light, the company is making progress in building a network of contract manufacturers for its products, which it can leverage for its existing products and will ensure agility when bringing future products to market.

H119 results

Total revenue was up 67% in the period, to CHF6.4m. Product-related revenue was up 65% to CHF3.0m and R&D revenue was up 69% to CHF3.4m. Operating expenses were down significantly, reflecting the work done over the past 12–24 months to streamline the business. EBITDA improved to a loss of CHF6.7m. Net cash at end H119 was CHF45.3m and cash burn in H2 is expected to slow as commitments on the EverSweet facility will not recur. Guidance for FY19 remains the same and we therefore leave our forecasts unchanged.

Valuation: Fair value of CHF0.51 per share

We have updated our model to reflect current FX. We continue to value Evolva on a DCF basis with a 25-year model assuming cash break-even in FY22, in line with management guidance (which is for cash break-even in FY21/23). We still assume that nootkatone use in pest control starts to contribute from FY20. We also continue to make no allowance for the new product scheduled to be launched in FY20, as we have no details. Overall, our fair value decreases slightly to CHF0.51/share (from CHF0.53/share previously) due to the movement in FX.

Valuation

We detail our valuation in Exhibit 1. Our fair value decreases from CHF0.53/share to CHF0.51/share, mainly due to FX movements. We have trimmed our FY19 sales figures to better reflect the end of the US BARDA (Biomedical Advanced Research and Development Authority) contract, and we have also reduced our tax contribution to zero for FY19–21, in line with management guidance at H1 results that the tax credits have been exhausted. We continue to assume that nootkatone sales for pest control applications start in FY20 given the delay in approval. With the H119 results, Evolva’s management has stated that all questions raised by the EPA will be answered by mid-September. Although management would not be drawn into providing updated guidance on the timeline for approval, we expect sales will start in FY20.

It was announced with the H119 results that a new product will be launched in FY20. Given no further detail has been provided due to commercial reasons, we have not added this product to our sales model, but recognise it provides some upside to our current forecasts. We assume that cash and profit break-even for the company will occur in FY22, in line with management guidance. As a reminder, guidance is that cash break-even will occur between FY21 and FY23.

Exhibit 1: Summary valuation

Product

Value (CHFm)

Value per share
(CHF)

Notes

Stevia (royalty stream)

122.0

0.16

Launched; peak sales: $600m; royalty stream: 5%

Resveratrol

12.9

0.02

Launched; peak sales: $140m; likelihood of success 80%; margin: 30%.

Nootkatone

170.8

0.22

Launched; peak sales: $150m; likelihood of success 75%*; margin: 40%.

Valencene

16.4

0.02

Launched; peak sales: $10m; likelihood of success 90%; margin: 40%.

R&D partnerships

24.0

0.03

Assume revenue falls until FY20 and then stabilises

Capex

(10.1)

(0.01)

Includes contribution to Cargill for commercialisation of EverSweet

Net cash

60.4

0.08

Reported net cash at end FY18

Total

396.5

0.51

Using FY19 average number of shares throughout

Source: Edison Investment Research. Note: WACC = 12.5%. Note: *There is no development risk associated with nootkatone, but we have applied a risk adjustment due to uncertainty about the use of the product as an insect repellent.

We use a 25-year DCF valuation with a fade. Each product has varying peak sales, margins, ramp-up assumptions and probabilities of success, as detailed above. In each case, we reduce the R&D and operating expenditure after launch to reflect the lower level of investment required once the product is established on the market. We start to fade stevia in 2031 (year 13) and the other products in 2035 (year 17) and we assume they become commoditised and their operating margins fall to the single digits, which is the level of commoditised food ingredients. Stevia remains a key product at c 25% of our valuation, after adjusting for tax and capex, but note that we see greater value overall in nootkatone.

Our valuation purely reflects the products on which Evolva has chosen to concentrate and we ascribe zero value to all other alliances/collaborations and other projects. We recognise that the latter do retain some residual value, but for the sake of conservatism we err on the side of caution. Management has stated it would consider these existing projects if commercial partners express an interest in them. As discussed above, we also ascribe no value to a new compound discussed in the H119 results and due to be launched in FY20 that remains unknown to the market. As a reminder, three new compounds were discussed in the FY18 results, but again no details were given. For the sake of conservatism, we also do not value vanillin; although this had seemed like a promising compound several years ago, the collaboration with Evolva’s partner IFF had been disappointing and we removed vanillin from our valuation. We note the encouraging comments made by management with the H119 results, so vanillin could also provide some upside to our forecasts.

Exhibit 2: Financial summary

CHF'000s

2016

2017

2018

2019e

2020e

2021e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

9,576

6,817

8,933

10,876

18,213

42,486

Cost of Sales

(2,951)

(4,698)

(6,816)

(2,576)

(4,557)

(13,540)

Gross Profit

6,624

2,119

2,117

8,301

13,655

28,946

EBITDA

 

 

(33,965)

(37,629)

(23,350)

(15,118)

(9,971)

5,375

Operating Profit (before GW and except.)

(36,078)

(39,804)

(24,827)

(15,522)

(10,173)

(16,072)

Intangible Amortisation

(5,090)

(5,126)

(5,909)

(5,909)

(5,909)

(5,909)

Exceptionals

0

0

0

0

0

0

Operating Profit

(41,169)

(44,929)

(30,736)

(21,980)

(16,467)

(1,093)

Net Interest

497

(596)

(622)

242

150

68

Other financial income

(338)

(482)

40

0

0

0

Profit Before Tax (norm)

 

 

(35,919)

(40,882)

(25,409)

(15,830)

(10,408)

4,884

Profit Before Tax (FRS 3)

 

 

(41,009)

(46,007)

(31,318)

(21,739)

(16,316)

(1,025)

Tax

5,160

7,023

2,104

0

0

0

Profit After Tax (norm)

(30,880)

(33,881)

(23,305)

(15,830)

(10,408)

4,884

Profit After Tax (FRS 3)

(35,850)

(38,984)

(29,214)

(21,739)

(16,316)

(1,025)

Average Number of Shares Outstanding (m)

452.8

482.1

770.6

770.6

770.6

770.6

EPS - normalised (c)

 

 

(6.8)

(7.0)

(3.0)

(2.1)

(1.4)

0.6

EPS - FRS 3 (c)

 

 

(7.9)

(8.1)

(3.8)

(2.8)

(2.1)

(0.1)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

N/A

N/A

N/A

N/A

N/A

N/A

EBITDA Margin (%)

N/A

N/A

N/A

N/A

N/A

N/A

Operating Margin (before GW and except.) (%)

N/A

N/A

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

141,356

132,125

145,825

151,389

149,939

139,383

Intangible Assets

130,256

124,487

138,838

132,930

127,021

121,112

Tangible Assets

7,522

5,208

4,769

4,193

3,999

3,848

Other fixed assets

3,578

2,430

2,218

14,266

18,919

14,423

Current Assets

 

 

56,880

107,697

67,192

40,478

25,008

36,377

Stocks

5,687

8,009

4,040

4,920

8,238

19,217

Debtors

2,139

1,831

1,941

2,610

4,371

10,197

Cash

47,517

97,185

60,380

32,118

11,569

6,133

Other current assets

1,537

673

830

830

830

830

Current Liabilities

 

 

(5,690)

(12,261)

(14,705)

(14,237)

(14,442)

(15,422)

Creditors

(1,174)

(1,933)

(743)

(281)

(497)

(1,476)

Short term borrowings

0

0

0

0

0

0

Finance lease obligations

(978)

(781)

(782)

(782)

(782)

(782)

Other current liabilities

(3,537)

(9,546)

(13,180)

(13,174)

(13,164)

(13,164)

Long Term Liabilities

 

 

(19,489)

(6,840)

(4,150)

(3,358)

(2,567)

(1,775)

Long term borrowings

0

0

0

0

0

0

Finance lease obligations

(3,564)

(2,400)

(2,394)

(1,603)

(811)

(20)

Other long term liabilities

(15,925)

(4,440)

(1,756)

(1,756)

(1,756)

(1,756)

Net Assets

 

 

173,057

220,721

194,162

174,272

157,938

158,563

CASH FLOW

Operating Cash Flow

 

 

(33,551)

(35,224)

(23,247)

(21,805)

(19,515)

(4,304)

Net Interest

(301)

(379)

(360)

242

150

68

Capex

(947)

(582)

(364)

(378)

(393)

(409)

Acquisitions/disposals

(210)

0

0

0

0

0

Financing

0

86,457

(209)

0

0

0

Dividends

0

0

0

0

0

0

Other cash flow

(677)

(658)

(12,595)

(6,291)

(791)

(791)

Net Cash Flow

(35,686)

49,614

(36,775)

(28,233)

(20,549)

(5,436)

Opening net debt/(cash)

 

 

(83,228)

(47,516)

(97,155)

(60,351)

(32,119)

(11,569)

HP finance leases initiated

0

0

0

0

0

0

Other

(26)

24

(29)

0

0

0

Closing net debt/(cash)

 

 

(47,516)

(97,155)

(60,351)

(32,119)

(11,569)

(6,134)

Source: Company accounts, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Evolva and prepared and issued by Edison, in consideration of a fee payable by Evolva. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

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New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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Frankfurt +49 (0)69 78 8076 960

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Evolva and prepared and issued by Edison, in consideration of a fee payable by Evolva. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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ICG-Longbow SSUP — Portfolio transition in progress

ICG-Longbow Senior Secured UK Property Debt Investments (LBOW) offers exposure to the UK real estate debt market through investments in senior secured whole loans. This year, LBOW has continued the evolution of its portfolio under the revised investment policy (adopted in 2017). This is now enabling LBOW to reinvest its funds in higher-yielding loans while maintaining an LTV at portfolio level well within the target range. After a slower than expected start, LBOW’s deal activity recently picked up with two new deals closed so far this year on top of short-term extensions and/or repricing of several existing loans. The company’s encouraging investment pipeline allows it to more than absorb the cash from maturing loans.

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