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Manufacturing difficulties

Evolva 10 November 2020 Update
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Evolva

Manufacturing difficulties

FY20 update

Food & beverages

10 November 2020

Price

CHF0.21

Market cap

CHF175m

Net cash (CHFm) at 30 June 2020

25.3

Shares in issue

822m

Free float

100%

Code

EVE

Primary exchange

SIX Swiss Exchange

Secondary exchange

OTC US

Share price performance

%

1m

3m

12m

Abs

(9.7)

(16.2)

30.1

Rel (local)

(9.7)

(17.9)

29.7

52-week high/low

CHF0.31

CHF0.15

Business description

Evolva is a Swiss biotech company focused on the research, development and commercialisation of ingredients based on nature. The company has leading businesses in Flavours and Fragrances, Health Ingredients and Health Protection.

Next events

FY20 results

25 February 2021

AGM

8 April 2021

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 has updated its outlook in light of the effects of the COVID-19 pandemic. FY20 guidance is now for product-related revenue growth to be consistent with last year (+59%). As a reminder, this was the guidance at the start of the year, and was upgraded with the H1 results in August, when management expected product-related revenue to double in FY20. EBITDA guidance is now lowered to a loss of CHF16–17m, having been reduced slightly in August (to ‘above prior-year level’). We adjust our forecasts accordingly and our fair value remains unchanged at CHF0.38/share.

Year end

Revenue (CHFm)

PBT*
(CHFm)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/18

8.9

(25.4)

(3.0)

0.0

N/A

N/A

12/19

11.6

(15.6)

(2.0)

0.0

N/A

N/A

12/20e

9.8

(16.8)

(2.1)

0.0

N/A

N/A

12/21e

16.8

(11.8)

(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.

F&F adversely affected; Health Ingredients resilient

The pandemic has adversely affected demand for ingredients used in beverages and fine fragrances. Despite the early positive trend during the summer – which led management to believe there would be a material bounce back – Flavours and Fragrances (F&F) sales have stagnated as Evolva’s customers have adjusted to lower consumer demand. Conversely, the demand for Health Ingredients continues to grow, with record order levels; the pandemic has increased consumer focus on health and wellbeing, thus driving demand for resveratrol; and manufacturing of Evolva’s new ingredient, EVE-X157/Z4, is being scaled up. On the Health Protection side, Evolva has continued to support its customers in driving activities towards the launch of the first consumer products containing nootkatone for pest control.

Contract manufacturers causing supply delays

As discussed above, demand for resveratrol continues to grow significantly, but the supply has been delayed by problems at key contract manufacturers, and the backlog has continued to grow since the end of H1. Evolva has appointed Gerhard Lobmaier as COO effective 1 January 2021, as it sees strengthening its manufacturing and supply chain as key steps in its path to reach cash break-even by FY23. Mr Lobmaier will be responsible for the manufacturing and supply chain functions and support the optimisation of the contract manufacturer network.

Valuation: Fair value of CHF0.38/share

We continue to value Evolva on a DCF basis with a 25-year model, assuming cash break-even in FY23, in line with management guidance. We note guidance has changed twice over the last few months, but F&F demand has been significantly affected by lockdowns and temporary restrictions in Evolva’s main markets. Our fair value remains CHF0.38/share, as we believe the impact on performance is short term. As a reminder, nootkatone contributes c 50% of our fair value for Evolva, with most of this coming from its use in pest control.

Valuation

We detail our valuation in Exhibit 1. The reduction in guidance should only affect the FY20 performance, as F&F demand in beverages and fine fragrances is significantly disrupted by the effects of lockdowns and temporary restrictions (eg reduced trading hours) in Evolva’s main markets. We have trimmed our FY21 figures to reflect the risk that the lockdowns extend into FY21. The increased EBITDA loss and increased cash burn in the nearer term is therefore likely to be temporary and has a very minor impact on our DCF valuation. Our fair value therefore remains unchanged at CHF0.38/share. We continue to exclude the new product – EVE-X157/Z4 – from our model as very little detail has been provided due to commercial reasons. We recognise that it could provide some upside to our current forecasts. We assume that cash and profit break-even for the company will occur in FY23, in line with management guidance. We forecast the company to exhaust its cash reserves during FY22 and hence expect net debt of around CHF4.9m at end FY22 (vs our prior estimate of end FY22 net debt of CHF0.5m). We note the announcement in June regarding the issuance of convertible notes should help to finance the debt at a reasonable cost.

Exhibit 1: Summary of DCF valuation

Product

Value
(CHFm)

Value/share (CHF)

Notes

Stevia (royalty stream)

80.5

0.10

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

Resveratrol

21.2

0.03

Launched; peak sales: $140m; margin: 30%

Nootkatone

158.0

0.19

Launched; peak sales: $150m; margin: 40%

Valencene

13.4

0.02

Launched; peak sales: $10m; margin: 40%

R&D partnerships

1.9

0.00

Assume revenue continues to fall

Capex

(6.0)

(0.01)

Includes contribution to Cargill for commercialisation of EverSweet

Net cash

39.9

0.05

Reported net cash at end FY19

Total

308.9

0.38

Based on last reported number of shares (822m)

Source: Edison Investment Research. Note: WACC = 12.5%.

Exhibit 2: Financial summary

CHF'000s

2017

2018

2019

2020e

2021e

2022e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

6,817

8,933

11,596

9,782

16,753

27,210

Cost of Sales

(4,698)

(6,816)

(6,305)

(5,182)

(6,980)

(11,331)

Gross Profit

2,119

2,117

5,292

4,600

9,773

15,879

EBITDA

 

 

(37,629)

(23,350)

(12,280)

(15,766)

(10,659)

(4,905)

Operating Profit (before GW and except.)

(39,804)

(24,827)

(14,067)

(17,386)

(11,351)

(16,992)

Intangible Amortisation

(5,126)

(5,909)

(6,060)

(6,060)

(6,060)

(6,060)

Exceptionals

0

0

0

0

0

0

Operating Profit

(44,929)

(30,736)

(20,128)

(23,052)

(17,956)

(11,996)

Net Interest

(596)

(622)

(1,486)

160

85

28

Other financial income

(482)

40

0

0

0

0

Profit Before Tax (norm)

 

 

(40,882)

(25,409)

(15,553)

(16,832)

(11,811)

(5,908)

Profit Before Tax (FRS 3)

 

 

(46,007)

(31,318)

(21,614)

(22,892)

(17,871)

(11,968)

Tax

7,023

2,104

(25)

0

0

0

Profit After Tax (norm)

(33,881)

(23,305)

(15,578)

(16,832)

(11,811)

(5,908)

Profit After Tax (FRS 3)

(38,984)

(29,214)

(21,639)

(22,892)

(17,871)

(11,968)

Average Number of Shares Outstanding (m)

482.1

770.6

770.4

809.3

821.8

809.3

EPS - normalised (c)

 

 

(7.0)

(3.0)

(2.0)

(2.1)

(1.4)

(0.7)

EPS - FRS 3 (c)

 

 

(8.1)

(3.8)

(2.8)

(2.8)

(2.2)

(1.5)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

31.1

23.7

45.6

47.0

58.3

58.4

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

 

 

132,125

145,825

143,333

141,324

135,812

130,514

Intangible Assets

124,487

138,838

133,939

127,878

121,818

115,757

Tangible Assets

5,208

4,769

7,211

6,186

5,157

4,343

Other fixed assets

2,430

2,218

2,184

7,260

8,837

10,414

Current Assets

 

 

107,697

67,192

48,745

27,446

16,019

16,375

Stocks

8,009

4,040

5,392

6,358

8,377

10,884

Debtors

1,831

1,941

1,480

1,467

2,178

3,537

Cash

97,185

60,380

39,920

17,667

3,511

0

Other current assets

673

830

1,954

1,954

1,954

1,954

Current Liabilities

 

 

(12,261)

(14,705)

(12,295)

(11,777)

(12,607)

(14,616)

Creditors

(1,933)

(743)

(2,912)

(2,393)

(3,223)

(5,233)

Short term borrowings

0

0

0

0

0

0

Finance lease obligations

(781)

(782)

(1,289)

(1,289)

(1,289)

(1,289)

Other current liabilities

(9,546)

(13,180)

(8,095)

(8,095)

(8,095)

(8,095)

Long Term Liabilities

 

 

(6,840)

(4,150)

(7,221)

(6,137)

(5,053)

(8,883)

Long term borrowings

0

0

0

0

0

(4,914)

Finance lease obligations

(2,400)

(2,394)

(4,840)

(3,756)

(2,673)

(1,589)

Other long term liabilities

(4,440)

(1,756)

(2,381)

(2,381)

(2,381)

(2,381)

Net Assets

 

 

220,721

194,162

172,562

150,856

134,171

123,389

CASH FLOW

Operating Cash Flow

 

 

(35,224)

(23,247)

(13,577)

(17,629)

(12,948)

(7,153)

Net Interest

(379)

(360)

(583)

160

85

28

Capex

(582)

(364)

(193)

(201)

(209)

(217)

Acquisitions/disposals

0

0

0

0

0

0

Financing

86,457

(209)

164

0

0

0

Dividends

0

0

0

0

0

0

Other cash flow

(658)

(12,595)

(6,224)

(4,584)

(1,084)

(1,084)

Net Cash Flow

49,614

(36,775)

(20,413)

(22,253)

(14,155)

(8,425)

Opening net debt/(cash)

 

 

(47,516)

(97,184)

(60,381)

(39,920)

(17,667)

(3,511)

HP finance leases initiated

0

0

0

0

0

0

Other

54

(29)

(47)

0

0

0

Closing net debt/(cash)

 

 

(97,184)

(60,381)

(39,920)

(17,667)

(3,511)

4,914

Source: Edison Investment Research, company data


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 2020 Edison Investment Research Limited (Edison).

Australia

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

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

1185 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

1185 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 2020 Edison Investment Research Limited (Edison).

Australia

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

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

1185 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

1185 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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