Headroom improves

Evolva 16 March 2017 Update
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Evolva

Headroom improves

Increased financing

Food & beverages

16 March 2017

Price

CHF0.56

Market cap

CHF223m

Net cash (CHFm) at end December 2016e

47.5

Shares in issue

397.9m

Free float

76%

Code

EVE

Primary exchange

SIX Swiss Ex

Secondary exchange

OTC US

Share price performance

%

1m

3m

12m

Abs

(5.1)

36.6

(41.1)

Rel (local)

(7.3)

29.1

(46.0)

52-week high/low

CHF0.95

CHF0.39

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

FY16 results

30 March 2017

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 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*
(CHFm)

EPS*
(c)

DPS
(c)

P/E
(x)

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

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, advisors 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 Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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 2017. “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

245 Park Avenue, 39th Floor

10167, 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

245 Park Avenue, 39th Floor

10167, 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, advisors 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 Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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 2017. “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

245 Park Avenue, 39th Floor

10167, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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