Everything EverSweet

Evolva 13 November 2018 Update
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Evolva

Everything EverSweet

Q3 trading statement

Food & beverages

13 November 2018

Price

CHF0.24

Market cap

CHF185m

Net cash (CHFm) at 30 June 2018

75

Shares in issue

769.8m

Free float

85%

Code

EVE

Primary exchange

SIX Swiss Ex

Secondary exchange

OTC US

Share price performance

%

1m

3m

12m

Abs

(13.6)

(10.5)

(20.8)

Rel (local)

(16.7)

(10.1)

(19.5)

52-week high/low

CHF0.4

CHF0.2

Business description

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

Next events

FY18 results

March 2019

Analysts

Sara Welford

+44 (0)20 3077 5700

Paul Hickman

+44 (0)20 3681 2501

Evolva is a research client of Edison Investment Research Limited

Evolva’s Q3 trading statement is mixed, but overall we believe it contains more positive than negative news. The announcement that Cargill and DSM are to form a new joint venture to produce fermentation-based stevia under the EverSweet brand is not a threat to Evolva’s position and indeed could potentially accelerate growth of the market that is still in its infancy. We note that revenue guidance is somewhat less bullish than at the H1 results and we therefore trim our forecasts slightly. We also update our forecasts for FX and overall our fair value remains unchanged at CHF0.58

Year end

Revenue (CHFm)

PBT*
(CHFm)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/16

9.6

(35.9)

(6.8)

0.0

N/A

N/A

12/17

6.8

(40.9)

(7.0)

0.0

N/A

N/A

12/18e

7.6

(24.5)

(2.7)

0.0

N/A

N/A

12/19e

17.8

(19.1)

(2.1)

0.0

N/A

N/A

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

EverSweet expanding

Cargill and DSM’s new JV, Avansya, has been established in order to share technologies and their products will be marketed under the EverSweet brand name, which belongs to Cargill. Evolva’s collaboration with Cargill remains unchanged; therefore, Evolva’s product is effectively being brought into the JV. While the details are not yet clear, we assume that the JV will allow DSM’s steviol glycosides to be scaled up to industrial scale more rapidly, as Avansya will utilise Cargill’s existing Blair, Nebraska plant.

The implications

From a legal perspective, the new JV has no impact on Evolva’s collaboration with Cargill. Evolva’s product (in collaboration with Cargill) consists of a mix of Reb D and Reb M steviol glycosides, while it would appear that DSM’s product is more likely to focus on a mix of Reb A and Reb M. We note that the formation of the new JV is subject to regulatory approval and clearance by the competition authorities, as DSM and Cargill represent the vast majority of the fermentation-based stevia market. Of course, agriculturally-derived stevia is available and is currently a much larger market, therefore we expect the JV to go ahead. Two major players joining forces could significantly accelerate market growth and acceptance of a fermentation-based alternative to agriculturally-derived stevia. Longer term, it should also be positive for pricing, in our view.

Valuation: Fair value remains CHF0.58

We have updated our model to reflect current FX and management’s revised guidance for revenue growth to be “strong double digit” vs its previous guidance that growth would continue on the trajectory witnessed during H118 when revenues doubled. We have therefore trimmed our FY18 revenue forecasts. We continue to value Evolva on a DCF basis with a 25-year model, assuming break-even in FY21, in line with management guidance. Our fair value is unchanged at CHF0.58/share.

Forecasts and valuation

We detail our valuation in Exhibit 1. Our fair value remains unchanged at CHF0.58/share. We have slightly trimmed our FY18 sales forecasts in light of the guidance that product revenue growth will be “strong double-digit”. Our product revenue forecast for FY18 falls from CHF3.9m to CHF3.7m (compared to CHF2.0m reported in FY17). At this stage we leave our forecasts unchanged for FY19 and beyond. We note the filing for the registration of nootkatone for pest control applications remains on track. We still assume break-even occurs in FY21, in line with management guidance.

Exhibit 1: Summary of DCF valuation

Product

Value
(CHFm)

Value/share (CHF)

Notes

Stevia (royalty stream)

124.6

0.16

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

Resveratrol

13.4

0.02

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

Nootkatone

223.8

0.29

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

Valencene

21.1

0.03

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

R&D partnerships

23.4

0.03

Assume revenue falls until FY20 and then stabilises

Capex

-13.7

-0.02

Includes contribution to Cargill for commercialisation of EverSweet

Net cash

51.7

0.07

Estimated net cash at FY18

Total

444.3

0.58

Using FY19 average number of shares throughout

Source: Edison Investment Research. Note: WACC = 12.5%. *There is no developmental 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. As detailed above, each product has varying peak sales, margins, ramp-up assumptions and probabilities of success. Once the product is established on the market, we reduce the R&D and operating expenditure after launch to reflect the lower level of investment required in each case. We start to fade stevia in 2031 (year 12) and the other products in 2035 (year 16), and we also 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 that if commercial partners were to express an interest in these existing projects (for example saffron or santalol), they would consider them. However, we do ascribe a value to R&D grants and partnerships, which provide an ongoing revenue stream. We forecast a reduction in revenue, in line with management’s indications that there will be less focus on R&D partnerships going forward. We therefore expect R&D revenue to decline through to FY20, and subsequently stabilise.


Exhibit 2: Financial summary

CHF'000s

2015

2016

2017

2018e

2019e

2020e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

13,364

9,576

6,847

7,555

17,802

46,929

Cost of Sales

0

(2,951)

(4,698)

(2,275)

(7,041)

(22,203)

Gross Profit

13,364

6,624

2,149

5,279

10,762

24,726

EBITDA

 

 

(30,305)

(33,965)

(37,599)

(24,160)

(18,627)

(4,694)

Operating Profit (before GW and except.)

(31,947)

(36,078)

(39,774)

(24,889)

(19,339)

(5,395)

Intangible Amortisation

(3,779)

(5,090)

(5,126)

(5,126)

(5,126)

(5,126)

Exceptionals

0

0

0

0

0

0

Operating Profit

(35,726)

(41,169)

(44,900)

(30,015)

(24,464)

(10,520)

Net Interest

(129)

497

(596)

389

259

196

Other financial income

0

(338)

(482)

0

0

0

Profit Before Tax (norm)

 

 

(32,076)

(35,919)

(40,852)

(24,500)

(19,080)

(5,199)

Profit Before Tax (FRS 3)

 

 

(35,855)

(41,009)

(45,977)

(29,626)

(24,206)

(10,324)

Tax

4,067

5,160

7,023

3,555

2,905

1,239

Profit After Tax (norm)

(28,113)

(30,880)

(33,851)

(20,945)

(16,176)

(3,960)

Profit After Tax (FRS 3)

(31,788)

(35,850)

(38,954)

(26,071)

(21,301)

(9,085)

Average Number of Shares Outstanding (m)

401.3

452.8

482.1

770.6

770.6

770.6

EPS - normalised (c)

 

 

(7.0)

(6.8)

(7.0)

(2.7)

(2.1)

(0.5)

EPS - FRS 3 (c)

 

 

(7.9)

(7.9)

(8.1)

(3.4)

(2.8)

(1.2)

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

 

 

143,457

141,356

132,125

154,328

152,214

145,802

Intangible Assets

131,940

130,256

124,487

119,361

114,236

109,110

Tangible Assets

8,431

7,522

5,208

5,085

5,003

4,958

Other fixed assets

3,086

3,578

2,430

29,881

32,976

31,734

Current Assets

 

 

88,780

56,880

107,697

61,513

45,553

46,111

Stocks

2,217

5,687

8,009

3,740

5,401

10,341

Debtors

2,785

2,139

1,831

1,863

2,926

7,714

Cash

83,228

47,517

97,185

51,682

30,093

19,684

Other current assets

550

1,537

673

4,228

7,133

8,372

Current Liabilities

 

 

(7,385)

(5,690)

(12,261)

(11,062)

(11,009)

(10,961)

Creditors

(1,182)

(1,174)

(1,933)

(753)

(716)

(680)

Short term borrowings

0

0

0

0

0

0

Finance lease obligations

(969)

(978)

(781)

(781)

(781)

(781)

Other current liabilities

(5,234)

(3,537)

(9,546)

(9,527)

(9,512)

(9,500)

Long Term Liabilities

 

 

(21,437)

(19,489)

(6,840)

(6,840)

(6,840)

(6,840)

Long term borrowings

0

0

0

0

0

0

Finance lease obligations

(4,134)

(3,564)

(2,400)

(2,400)

(2,400)

(2,400)

Other long term liabilities

(17,303)

(15,925)

(4,440)

(4,440)

(4,440)

(4,440)

Net Assets

 

 

203,416

173,057

220,721

197,939

179,919

174,113

CASH FLOW

Operating Cash Flow

 

 

(31,353)

(33,551)

(35,194)

(32,286)

(15,218)

(9,950)

Net Interest

(376)

(301)

(379)

389

259

196

Tax

0

0

0

0

0

0

Capex

(1,865)

(947)

(582)

(606)

(630)

(655)

Acquisitions/disposals

3,278

(210)

0

0

0

0

Financing

59,956

0

86,457

0

0

0

Dividends

0

0

0

0

0

0

Other cash flow

(3,975)

(677)

(658)

(13,000)

(6,000)

0

Net Cash Flow

25,666

(35,686)

49,643

(45,503)

(21,589)

(10,408)

Opening net debt/(cash)

 

 

(57,191)

(83,228)

(47,516)

(97,184)

(51,682)

(30,093)

HP finance leases initiated

0

0

0

0

0

0

Other

371

(26)

24

1

0

0

Closing net debt/(cash)

 

 

(83,228)

(47,516)

(97,184)

(51,682)

(30,093)

(19,685)

Source: Edison Investment Research, Company data

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Evolva and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “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.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Evolva and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “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.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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