Evolva |
Manufacturing difficulties |
FY20 update |
Food & beverages |
10 November 2020 |
Share price performance
Business description
Next events
Analysts
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* |
EPS* |
DPS |
P/E |
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 |
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
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