Evolva |
Headroom improves |
Increased financing |
Food & beverages |
16 March 2017 |
Share price performance
Business description
Next events
Analysts
Evolva is a research client of Edison Investment Research Limited |
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Evolva has secured equity financing of up to CHF30m. This is a fully flexible arrangement with relatively good terms, which if drawn down in full would give the company about one year’s worth of cash. As an interim arrangement this allows headroom to increase considerably and should help management’s negotiating position with its partner, Cargill, as details of the stevia JV are yet to be agreed. Our valuation of CHF0.87/share remains unchanged.
Year end |
Revenue (CHFm) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/15 |
13.4 |
(32.1) |
(8.0) |
0.0 |
N/A |
N/A |
12/16e |
9.6 |
(32.2) |
(8.1) |
0.0 |
N/A |
N/A |
12/17e |
14.9 |
(31.4) |
(7.7) |
0.0 |
N/A |
N/A |
12/18e |
53.2 |
(29.4) |
(6.9) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
All eyes on stevia
As indicated by management with the trading update in January, the production of EverSweet is likely to involve a retrofit of the Cargill facility in Blair, Nebraska. The relatively small retrofit should ensure EverSweet retains its first-mover advantage ahead of DSM’s launch of a stevia sweetener in late 2018, and there would be a subsequent move to a new Evolva/Cargill facility. Both the retrofit and the new facility are subject to Evolva exercising its option to enter into a JV with Cargill. Talks have been ongoing for over a year now, and the risk remains that the two parties cannot reach an agreement that Evolva deems to be value-creating for its shareholders. Management still expects an agreement to be signed in the spring.
SEDA is flexible
The Standby Equity Distribution Agreement (SEDA) with a fund managed by Yorkville Advisors stipulates that Evolva can call upon up to CHF30m in equity financing over a 36-month period, in individual tranches of up to CHF1m. Yorkville will receive a CHF250,000 cash upfront fee, plus two additional instalments of CHF200,000 when the drawdown crosses CHF10m and CHF20m. In exchange for the funds provided, Yorkville will receive Evolva shares at a 5% discount to the prevailing market price when the shares are placed (ie each time a SEDA tranche is called). There is no obligation for Evolva to utilise any of the facility, hence providing maximum flexibility. At the current share price, the total commitment would represent dilution of c 13%.
Valuation: Fair value of CHF0.87/share
We update our model for the SEDA and FY16 metrics. Our fair value remains unchanged at CHF0.87/share. Evolva is well-capitalised with a cash position of c CHF47.5m at end FY16. We forecast it will have enough cash through to the end of FY18. However, if the option to enter into a JV with Cargill is exercised in 2017 and the accelerated move to a new stevia manufacturing facility goes ahead, Evolva may need to raise more cash and re-evaluate its balance sheet, most likely during FY18.
Valuation
We value Evolva on a 25-year DCF basis. Our fair value remains unchanged at CHF0.87/share, which offers c 40% upside from current levels. We assume all product cash flows stop after 25 years and start to fade beyond 15 years; we also assume a WACC of 12.5% given we deem Evolva to be higher-than-average risk in relation to the consumer space. We illustrate a summary of our updated DCF valuation in Exhibit 1.
Exhibit 1: Summary of DCF valuation
Product |
Value (CHFm) |
Value per share (CHF) |
Notes |
Stevia royalties |
218.9 |
0.54 |
Launch date: 2018; peak sales: $600m; likelihood of success 70%; operating margin: 40%; profit share: 45%. |
Saffron royalties |
12.7 |
0.03 |
Launch date: 2018; peak sales: $50m; likelihood of success 60%; royalty: 10%. |
Resveratrol |
91.8 |
0.23 |
Launched; peak sales: $200m; likelihood of success 100%; margin: 40%. |
Vanilla royalties |
14.7 |
0.04 |
Launched; peak sales: $35m; likelihood of success 100%; royalty: 5%. |
Nootkatone |
120.3 |
0.30 |
Launched; peak sales: $150m; likelihood of success 75%*; margin: 40%. |
Valencene |
29.2 |
0.07 |
Launched; peak sales: $10m; likelihood of success 100%; margin: 40%. |
Santalol |
13.8 |
0.03 |
Launch date: 2018; peak sales: $10m; likelihood of success 60%; margin: 40%. |
Legacy products |
32.9 |
0.08 |
EV-077 for diabetic nephropathy, EV-035 antibiotic indications |
L’Oréal/Takasago revenues |
105.9 |
0.26 |
Launch date: 2020-22; number of products: 5; peak sales: $150m per product; likelihood of success 50%; royalty: 8%. |
Other consumer royalties |
36.5 |
0.09 |
Royalties from alliances with Ajinomoto, BASF and Roquette; launch date: 2016-18; number of products: 3; peak sales: $150m per product; likelihood of success 60%; royalty: 2%. |
Other revenues |
4.6 |
0.01 |
Only includes revenues from existing collaborations and grants. |
R&D and admin |
(252.8) |
(0.62) |
|
Tax |
(102.5) |
(0.25) |
|
Capex |
(21.8) |
(0.05) |
Includes investment of $10m for commercialisation of stevia with Cargill. |
Net cash |
47.5 |
0.12 |
Net cash at end FY16 |
Total |
351.8 |
0.87 |
|
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.
Exhibit 2: Financial summary
CHF000s |
2014 |
2015 |
2016e |
2017e |
2018e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
10,744 |
13,364 |
9,628 |
14,938 |
53,224 |
Cost of Sales |
0 |
0 |
(838) |
(3,409) |
(37,195) |
||
Gross Profit |
10,744 |
13,364 |
8,790 |
11,528 |
16,029 |
||
EBITDA |
|
|
(19,405) |
(30,305) |
(31,382) |
(30,080) |
(28,604) |
Operating Profit (before GW and except.) |
(20,872) |
(31,947) |
(32,562) |
(31,385) |
(32,562) |
||
Intangible Amortisation |
(2,284) |
(3,779) |
(3,779) |
(3,779) |
(3,779) |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
(23,156) |
(35,726) |
(36,342) |
(35,164) |
(33,807) |
||
Net Interest |
(357) |
(129) |
333 |
(60) |
(93) |
||
Other financial income |
57 |
0 |
0 |
0 |
681 |
||
Profit Before Tax (norm) |
|
|
(21,172) |
(32,076) |
(32,229) |
(31,445) |
(29,440) |
Profit Before Tax (FRS 3) |
|
|
(23,456) |
(35,855) |
(36,009) |
(35,224) |
(33,219) |
Tax |
1,613 |
4,067 |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(19,069) |
(28,113) |
(32,229) |
(31,445) |
(29,440) |
||
Profit After Tax (FRS 3) |
(21,843) |
(31,788) |
(36,009) |
(35,224) |
(33,219) |
||
Average Number of Shares Outstanding (m) |
291.9 |
353.0 |
397.9 |
406.5 |
423.7 |
||
EPS - normalised (c) |
|
|
(6.4) |
(8.0) |
(8.1) |
(7.7) |
(6.9) |
EPS - FRS 3 (c) |
|
|
(7.3) |
(9.0) |
(9.1) |
(8.7) |
(7.8) |
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
N/A |
N/A |
N/A |
N/A |
N/A |
||
EBITDA Margin (%) |
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 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
149,742 |
143,457 |
140,567 |
142,635 |
144,671 |
Intangible Assets |
136,111 |
131,940 |
128,161 |
124,381 |
120,602 |
||
Tangible Assets |
10,484 |
8,431 |
9,320 |
10,168 |
10,983 |
||
Other fixed assets |
3,147 |
3,086 |
3,086 |
8,086 |
13,086 |
||
Current Assets |
|
|
62,870 |
88,780 |
51,121 |
26,672 |
21,528 |
Stocks |
313 |
2,217 |
918 |
1,868 |
12,228 |
||
Debtors |
1,510 |
2,785 |
2,110 |
2,456 |
8,749 |
||
Cash |
60,713 |
83,228 |
47,542 |
21,798 |
0 |
||
Other current assets |
334 |
550 |
550 |
550 |
550 |
||
Current Liabilities |
|
|
(13,460) |
(7,385) |
(7,556) |
(7,610) |
(24,932) |
Creditors |
(2,408) |
(1,182) |
(1,353) |
(1,407) |
(1,505) |
||
Short term borrowings |
(3,522) |
0 |
0 |
0 |
(17,224) |
||
Finance lease obligations |
(354) |
(969) |
(969) |
(969) |
(969) |
||
Other current liabilities |
(7,176) |
(5,234) |
(5,234) |
(5,234) |
(5,234) |
||
Long Term Liabilities |
|
|
(24,158) |
(21,437) |
(20,468) |
(19,499) |
(18,530) |
Long term borrowings |
0 |
0 |
0 |
0 |
0 |
||
Finance lease obligations |
(3,904) |
(4,134) |
(3,165) |
(2,196) |
(1,228) |
||
Other long term liabilities |
(20,254) |
(17,303) |
(17,303) |
(17,303) |
(17,303) |
||
Net Assets |
|
|
174,994 |
203,416 |
163,665 |
142,198 |
122,737 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
(19,437) |
(31,353) |
(32,980) |
(27,563) |
(40,721) |
Net Interest |
(361) |
(376) |
333 |
(60) |
(93) |
||
Tax |
0 |
0 |
0 |
0 |
0 |
||
Capex |
(1,201) |
(1,865) |
(2,070) |
(2,152) |
(2,239) |
||
Acquisitions/disposals |
418 |
3,278 |
0 |
0 |
0 |
||
Financing |
56,776 |
59,956 |
0 |
10,000 |
10,000 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
||
Other cash flow |
(4,614) |
(3,975) |
(969) |
(5,969) |
(5,969) |
||
Net Cash Flow |
31,582 |
25,666 |
(35,685) |
(25,744) |
(39,022) |
||
Opening net debt/(cash) |
|
|
(25,633) |
(57,191) |
(83,188) |
(47,503) |
(21,758) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
||
Other |
(25) |
331 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(57,191) |
(83,188) |
(47,503) |
(21,758) |
17,263 |
Source: Edison Investment Research, Evolva data
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