Evolva |
Resilience in a challenging environment |
H120 results |
Food & beverages |
28 August 2020 |
Share price performance
Business description
Next events
Analysts
Evolva is a research client of Edison Investment Research Limited |
Evolva’s H120 results demonstrate excellent progress in its transformation from an R&D-driven enterprise towards a commercial company with a product-based revenue model. It recently received US EPA registration for nootkatone, and H120 witnessed a record order intake. COVID-19 caused delays at its contract manufacturers and hence only part of these record orders could be realised in H1, though much of these should be shipped in H2. EBITDA was also adversely affected by lower sales in Flavours & Fragrances (F&F) due to the pandemic. The company is seeing early signs of recovery and reiterates its commitment to cash break-even by FY23.
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 |
10.0 |
(15.5) |
(1.9) |
0.0 |
N/A |
N/A |
12/21e |
17.3 |
(10.0) |
(1.2) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Strong growth despite COVID-19 effects
Product-related revenue increased 27% to CHF3.8m during H120. As expected, the COVID-19 pandemic predominantly affected the F&F business with softened demand. In addition, contract manufacturers were unable to deliver orders worth c CHF2.4m, but management expects to be able to make up for these delays during H2. Moreover, Evolva plans to launch a new product – currently known as EVE-X157/Z4 – in the F&F and Health Ingredients space before the end of the year.
Increased sales guidance, higher cash burn
Evolva’s FY20 guidance is now for product-related revenue to double over the prior year. This is above previous guidance, which was for product-related revenue growth to be consistent with last year (+59%). EBITDA guidance is slightly lower due to the extra costs associated with the pandemic, and new guidance is for cash burn to be above the 2019 level (previously expected to be in line). The commitment to achieve cash break-even by 2023 is reiterated. We increase our FY20 product sales forecasts, reduce our R&D revenue forecasts and reduce our EBITDA forecasts to reflect updated guidance. We also increase our cash outflow for FY20–22 in light of increasing inventory levels ahead of product launches, and now forecast the company to exhaust its cash reserves during FY22.
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. Our fair value reduces to CHF0.38/share (from CHF0.41/share previously) due to lower EBITDA and increased cash outflow in FY20–22, and adverse FX movements. The lower EBITDA is caused predominantly by higher costs as a result of COVID-19, which we expect will persist until FY22, and in FY20 also by lower F&F sales due to the pandemic, although overall product sales guidance has increased. As a reminder, nootkatone contributes c 50% of our fair value for Evolva, with most of this coming from its use in pest control.
H120 results
Total revenue was down 38% in the period, to CHF4.0m. Product-related revenue was up 27% to CHF3.8m and R&D revenue was down 94% to CHF0.2m, as expected, following the completion of the US Biomedical Advanced Research and Development Authority (BARDA) contract. Operating costs were down by 3% despite an extraordinary expense of CHF0.7m relating to an increased provision for an R&D collaboration with the US Defense Threat Reduction Agency (DTRA) dating back to 2008–11. Excluding the extraordinary expense, operating costs were down 9%, reflecting lower regulatory costs (as the Environmental Protection Agency (EPA) registration process was largely complete), further streamlining of the business, and tight operational expense management. The EBITDA loss for the period widened to CHF8.3m due to a number of factors: significantly lower R&D revenues, delays at contract manufacturers due to the pandemic and lower F&F sales also caused by the pandemic. Net cash at end H120 was CHF25.3m vs CHF39.9m at end FY19.
We increase our FY20 product sales forecasts and reduce our EBITDA forecasts to reflect updated guidance. Our R&D revenue forecasts are now lower and hence the fall in total revenue. We also increase our cash outflow for FY20–22 due to increasing inventory levels ahead of product launches, and now forecast the company to exhaust its cash reserves during FY22. We illustrate a summary of our forecast changes in Exhibit 1.
Exhibit 1: Forecast changes to key metrics FY20–22
CHFm |
2020e |
2021e |
2022e |
|||
Old |
New |
Old |
New |
Old |
New |
|
Product revenue |
7.6 |
9.7 |
16.7 |
17.1 |
28.1 |
27.1 |
R&D revenue |
3.1 |
0.3 |
2.1 |
0.2 |
1.5 |
0.2 |
Total revenue |
10.7 |
10.0 |
18.8 |
17.3 |
29.6 |
27.2 |
Gross profit |
7.1 |
4.8 |
12.2 |
10.3 |
17.8 |
15.9 |
Operating profit |
-19.4 |
-21.7 |
-14.3 |
-16.2 |
-8.7 |
-10.7 |
Net debt/(cash) at end of year |
-24.1 |
-18.9 |
-13.3 |
-6.3 |
-7.7 |
0.5 |
Source: Edison Investment Research
Valuation
We detail our valuation in Exhibit 2. Our fair value decreases from CHF0.41/share to CHF0.38/share due to the reduction in EBITDA for FY20-22 and increased cash burn in the nearer term and FX movements. We have increased our FY20 product sales figures in line with guidance and have cut our R&D sales figures to better reflect the end of the US BARDA contract. We continue to exclude the new product – EVE-X157/Z4 – from our model as very little detail has been provided due to competitive reasons. We recognise it would provide some upside to our current forecasts. We continue to assume that cash and profit break-even for the company will occur in FY23, in line with management guidance. We now forecast the company to exhaust its cash reserves during FY22 and hence expect net debt of around CHF0.5m at end FY22 (versus our previous estimate of net cash of CHF7.7m by this period). We note the recent announcement regarding the issuance of convertible notes should help to finance the debt at a reasonable cost.
Exhibit 2: Summary of DCF valuation
Product |
Value |
Value/share (CHF) |
Notes |
Stevia (royalty stream) |
80.6 |
0.10 |
Launched; peak sales: $600m; royalty stream: 5% |
Resveratrol |
21.4 |
0.03 |
Launched; peak sales: $140m; margin: 30% |
Nootkatone |
158.1 |
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 decline |
Capex |
(6.0) |
(0.01) |
Includes contribution to Cargill for commercialisation of EverSweet |
Net cash |
39.8 |
0.05 |
Reported net cash at end FY19 |
Total |
309.3 |
0.38 |
Based on last reported number of shares (822m) |
Source: Edison Investment Research. Note: WACC = 12.5%.
Exhibit 3: 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 |
9,972 |
17,306 |
27,222 |
Cost of Sales |
(4,698) |
(6,816) |
(6,305) |
(5,204) |
(6,983) |
(11,336) |
||
Gross Profit |
2,119 |
2,117 |
5,292 |
4,768 |
10,323 |
15,887 |
||
EBITDA |
|
|
(37,629) |
(23,350) |
(12,280) |
(14,430) |
(8,883) |
(3,610) |
Operating Profit (before GW and except.) |
(39,804) |
(24,827) |
(14,188) |
(15,656) |
(14,067) |
(15,656) |
||
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) |
(21,716) |
(16,180) |
(10,702) |
||
Net Interest |
(596) |
(622) |
(1,486) |
160 |
89 |
39 |
||
Other financial income |
(482) |
40 |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
(40,882) |
(25,409) |
(15,553) |
(15,496) |
(10,030) |
(4,602) |
Profit Before Tax (FRS 3) |
|
|
(46,007) |
(31,318) |
(21,614) |
(21,556) |
(16,091) |
(10,662) |
Tax |
7,023 |
2,104 |
(25) |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(33,881) |
(23,305) |
(15,578) |
(15,496) |
(10,030) |
(4,602) |
||
Profit After Tax (FRS 3) |
(38,984) |
(29,214) |
(21,639) |
(21,556) |
(16,091) |
(10,662) |
||
Average Number of Shares Outstanding (m) |
482.1 |
770.6 |
770.4 |
809.3 |
770.4 |
809.3 |
||
EPS - normalised (c) |
|
|
(7.0) |
(3.0) |
(2.0) |
(1.9) |
(1.2) |
(0.6) |
EPS - FRS 3 (c) |
|
|
(8.1) |
(3.8) |
(2.8) |
(2.7) |
(2.0) |
(1.3) |
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
31.1 |
23.7 |
45.6 |
47.8 |
59.6 |
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 |
141,377 |
135,865 |
130,567 |
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 |
7,314 |
8,890 |
10,467 |
||
Current Assets |
|
|
107,697 |
67,192 |
48,745 |
28,792 |
19,137 |
16,381 |
Stocks |
8,009 |
4,040 |
5,392 |
6,482 |
8,653 |
10,889 |
||
Debtors |
1,831 |
1,941 |
1,480 |
1,496 |
2,250 |
3,539 |
||
Cash |
97,185 |
60,380 |
39,920 |
18,861 |
6,281 |
0 |
||
Other current assets |
673 |
830 |
1,954 |
1,954 |
1,954 |
1,954 |
||
Current Liabilities |
|
|
(12,261) |
(14,705) |
(12,295) |
(11,787) |
(12,609) |
(14,619) |
Creditors |
(1,933) |
(743) |
(2,912) |
(2,403) |
(3,225) |
(5,235) |
||
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) |
(4,465) |
Long term borrowings |
0 |
0 |
0 |
0 |
0 |
(496) |
||
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 |
152,245 |
137,341 |
127,864 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
(35,224) |
(23,247) |
(13,577) |
(16,435) |
(11,377) |
(5,515) |
Net Interest |
(379) |
(360) |
(583) |
160 |
89 |
39 |
||
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) |
(21,059) |
(12,580) |
(6,777) |
||
Opening net debt/(cash) |
|
|
(47,516) |
(97,184) |
(60,381) |
(39,920) |
(18,861) |
(6,281) |
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) |
(18,861) |
(6,281) |
496 |
Source: Edison Investment Research, company data
|
|