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Research: Consumer
Evolva’s FY21 revenues of CHF9.9m were below our forecast of CHF14.1m as the pandemic continued to stifle momentum during H2. Flavours and Fragrances grew revenues by 48% as consumer demand for natural ingredients remained strong. The Health Ingredients segment grew revenues by 46%, though the royalty stream from Eversweet was below company expectations. Gross contribution in Q4 was at break-even, as per guidance. The outlook is for revenue growth of 50% at constant currency in FY22, which is below our previous forecast of CHF27.5m. We cut our forecasts to reflect new guidance and reassess our long-term estimates.
Written by
Evolva |
A new era |
FY21 results |
Food & beverages |
18 March 2022 |
Share price performance
Business description
Next events
Analysts
Evolva is a research client of Edison Investment Research Limited |
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Evolva’s FY21 revenues of CHF9.9m were below our forecast of CHF14.1m as the pandemic continued to stifle momentum during H2. Flavours and Fragrances grew revenues by 48% as consumer demand for natural ingredients remained strong. The Health Ingredients segment grew revenues by 46%, though the royalty stream from Eversweet was below company expectations. Gross contribution in Q4 was at break-even, as per guidance. The outlook is for revenue growth of 50% at constant currency in FY22, which is below our previous forecast of CHF27.5m. We cut our forecasts to reflect new guidance and reassess our long-term estimates.
Year end |
Revenue (CHFm) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/20 |
7.5 |
(23.4) |
(2.9) |
0.0 |
N/A |
N/A |
12/21 |
9.9 |
(24.5) |
(2.6) |
0.0 |
N/A |
N/A |
12/22e |
14.9 |
(13.5) |
(1.3) |
0.0 |
N/A |
N/A |
12/23e |
23.4 |
(8.6) |
(0.8) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Positive gross margin contribution from FY22
As Evolva progresses towards having a product-based revenue model, it has confirmed that FY22 will continue the trend started in Q4 and the gross contribution will be positive, which will be a key step towards eventually achieving positive operating and net profit. The new CEO, Christian Wichert, will revise the strategy and mid-term targets by the H1 results in August. The guidance of reaching cash break-even by end FY23 has notably been dropped for now.
Renewed focus on commercialisation and agility
The new CEO, who was appointed unexpectedly in mid-February with immediate effect, has given his first impressions of the business. He believes Evolva is well-placed to capitalise on the long-term consumer trend of nature-based products, which are in the sweet spot of health, wellness and sustainability. His immediate focus will be on three levers: boosting commercial performance, executing spending and cost discipline and changing the culture to be entrepreneurial, agile and collaborative.
Valuation: Fair value of CHF0.24/share
We continue to value Evolva on a DCF basis with a 25-year model. We have reassessed our long-term growth assumptions and trimmed our peak sales forecasts for most of Evolva’s products in our model. Our fair value reduces to CHF0.24/share from CHF0.30/share previously. As a reminder, nootkatone contributes c 50% of our fair value for Evolva, with most of this coming from its use in pest control.
FY21 results and forecasts
Total revenue was up 31% in FY21, to CHF9.9m. Product-related revenue was up 40% to CHF9.1m, with all business segments contributing to growth. The company also significantly strengthened its manufacturing network during 2021, thus enabling future growth and profitability improvements. Gross contribution was at break-even for Q421 and FY21 gross profit was negative CHF9.3m, which included CHF5.6m of additional costs to enlarge the supplier base and scale up the manufacture of new products.
EBIT was negative CHF42.0m, which included CHF9.6m of one-time impairment charges related to patent and patent applications (as announced during H121). EBITDA for the period was negative CHF23.8m. Net cash from operating activities was negative CHF29.8m, including a CHF6.8m build-up of inventories of finished goods as the business builds up scale. Net cash at end FY21 was CHF11.0m versus CHF13.1m at end H121 and CHF 19.7m at end FY20. There were undrawn financing lines of CHF26.0 at the year end.
In Exhibit 1 we illustrate our forecasts versus the actual FY21 results and the key changes to our forecasts. We have cut our product revenue forecasts in FY22 to reflect the updated revenue guidance. This is significantly below our previous expectations; we expect this is in part due to the new CEO wishing to remain cautious while he gets to know the business more fully. We note that the H221 revenue performance was significantly weaker than expected, and indeed weaker than H1. This was in part caused by the omicron variant stifling growth during H2 (which obviously was not expected at the time of the H1 results), but management also admitted that H121 had benefitted from supply bottlenecks in H220 being resolved, thus demand had been artificially high and subsequently normalised during H221. The expectation is for a more normal FY22, and therefore growth in H222 is likely to outpace that in H122 as the comparatives will be tough during H1 and easier during H2. We have also cut our EBITDA forecasts, as the guidance for EBITDA and cash break-even by FY23 has been dropped.
Exhibit 1: Key forecasts
2021 |
2022e |
2023e |
||||
Forecast |
Actual |
Old |
New |
Old |
New |
|
Product revenue |
13.5 |
9.1 |
27.0 |
14.4 |
53.4 |
23.0 |
R&D revenue |
0.7 |
0.7 |
0.5 |
0.5 |
0.3 |
0.4 |
Total revenue |
14.2 |
9.9 |
27.5 |
14.9 |
53.7 |
23.4 |
Gross profit |
(2.2) |
(9.3) |
12.5 |
5.7 |
26.0 |
10.5 |
EBITDA |
(15.1) |
(23.8) |
(2.5) |
(9.5) |
10.9 |
(4.7) |
Operating profit |
(25.2) |
(42.0) |
(10.3) |
(18.0) |
3.3 |
(13.1) |
Net cash/(debt) at end of year |
2.0 |
11.0 |
(11.9) |
1.3 |
(8.1) |
(7.3) |
Source: Edison Investment Research, company data
Valuation
We detail our valuation in Exhibit 2. Our fair value decreases from CHF0.30/share to CHF0.24/share as we cut our sales forecasts both in the near term, as shown in Exhibit 1, and our peak sales for all products, as we reappraise their long-term potential.
We note nootkatone contributes just over 50% to our fair value of Evolva, with most of this coming from its use in pest control. Management has stated that it has made good progress on the regulatory front with Nootkashield (its nootkatone product used in pest control) and it is working on market-ready formulations to be sold in South-East Asia.
We continue to exclude L-arabinose (previously known as EVE-X157/Z4) from our model. The reducing sugar is used as a flavour ingredient and has potential as a prebiotic and an ingredient to support healthy blood sugar, and it has a significant addressable market (now disclosed as c CHF250m). However, as it is the latest product to be added to Evolva’s roster, full-scale commercial production could be subject to delays (currently scheduled for Q422), hence we prudently exclude it at present. We recognise that it could provide upside to our current forecasts.
Exhibit 2: Summary of DCF valuation
Product |
Value |
Value/share (CHF) |
Notes |
Stevia (royalty stream) |
79.8 |
0.08 |
Launched; peak sales: $500m; royalty stream: 5% |
Resveratrol |
35.7 |
0.03 |
Launched; peak sales: $36m; margin: 30%. |
Nootkatone |
137.7 |
0.13 |
Launched; peak sales: $140m; margin: 40%. |
Valencene |
13.6 |
0.01 |
Launched; peak sales: $8.5m; margin: 40%. |
R&D partnerships |
6.3 |
0.01 |
Assume revenue continues to fall |
Capex |
(4.4) |
0.00 |
|
Net debt |
1.3 |
0.00 |
Forecast net cash at end FY22 |
Funding gap requirement |
(20.1) |
(0.02) |
|
Total |
249.9 |
0.24 |
Using last reported number of shares (1031m) |
Source: Edison Investment Research. Note: WACC = 12.5%.
Exhibit 3: Financial summary
CHF'000s |
2019 |
2020 |
2021 |
2022e |
2023e |
2024e |
|||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
|||
PROFIT & LOSS |
|||||||||
Revenue |
|
|
11,596 |
7,541 |
9,878 |
14,947 |
23,368 |
42,022 |
|
Cost of Sales |
(6,305) |
(9,783) |
(19,184) |
(9,230) |
(12,860) |
(23,557) |
|||
Gross Profit |
5,292 |
(2,242) |
(9,306) |
5,717 |
10,508 |
18,465 |
|||
EBITDA |
|
|
(12,280) |
(16,733) |
(23,796) |
(9,463) |
(4,736) |
3,134 |
|
Operating Profit (before GW and except.) |
(14,067) |
(18,397) |
(34,724) |
(10,653) |
(25,095) |
2,243 |
|||
Intangible Amortisation |
(6,060) |
(6,508) |
(7,306) |
(7,306) |
(7,306) |
(7,306) |
|||
Exceptionals |
0 |
0 |
(9,628) |
0 |
0 |
0 |
|||
Operating Profit |
(20,128) |
(24,905) |
(42,030) |
(17,959) |
(13,064) |
(5,063) |
|||
Net Interest |
(1,486) |
(4,978) |
622 |
(2,819) |
(2,857) |
(2,892) |
|||
Other financial income |
0 |
0 |
0 |
0 |
0 |
0 |
|||
Profit Before Tax (norm) |
|
|
(15,553) |
(23,375) |
(24,473) |
(13,472) |
(8,616) |
(649) |
|
Profit Before Tax (FRS 3) |
|
|
(21,614) |
(29,882) |
(41,408) |
(20,778) |
(15,922) |
(7,955) |
|
Tax |
(25) |
18 |
141 |
0 |
0 |
0 |
|||
Profit After Tax (norm) |
(15,578) |
(23,357) |
(24,332) |
(13,472) |
(8,616) |
(649) |
|||
Profit After Tax (FRS 3) |
(21,639) |
(29,864) |
(41,266) |
(20,778) |
(15,922) |
(7,955) |
|||
Average Number of Shares Outstanding (m) |
770.4 |
809.3 |
926.2 |
1,030.6 |
1,030.6 |
1,030.6 |
|||
EPS - normalised (c) |
|
|
(2.0) |
(2.9) |
(2.6) |
(1.3) |
(0.8) |
(0.1) |
|
EPS - FRS 3 (c) |
|
|
(2.8) |
(3.7) |
(4.5) |
(2.0) |
(1.5) |
(0.8) |
|
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|||
Gross Margin (%) |
45.6 |
-29.7 |
-94.2 |
38.2 |
45.0 |
43.9 |
|||
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 |
|
|
143,333 |
133,316 |
126,068 |
117,920 |
109,955 |
102,136 |
|
Intangible Assets |
133,939 |
123,894 |
113,302 |
105,996 |
98,690 |
91,384 |
|||
Tangible Assets |
7,211 |
6,914 |
5,953 |
5,111 |
4,451 |
3,938 |
|||
Other fixed assets |
2,184 |
2,508 |
6,814 |
6,814 |
6,814 |
6,814 |
|||
Current Assets |
|
|
48,745 |
33,577 |
34,410 |
17,028 |
17,672 |
30,357 |
|
Stocks |
5,392 |
9,125 |
16,269 |
12,705 |
12,852 |
23,112 |
|||
Debtors |
1,480 |
2,347 |
4,502 |
2,541 |
3,038 |
5,463 |
|||
Cash |
39,920 |
19,669 |
11,857 |
0 |
0 |
0 |
|||
Other current assets |
1,954 |
2,435 |
1,782 |
1,782 |
1,782 |
1,782 |
|||
Current Liabilities |
|
|
(12,295) |
(15,139) |
(15,221) |
(13,340) |
(14,026) |
(16,047) |
|
Creditors |
(2,912) |
(2,128) |
(3,625) |
(1,744) |
(2,430) |
(4,451) |
|||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
|||
Finance lease obligations |
(1,289) |
(1,059) |
(834) |
(834) |
(834) |
(834) |
|||
Other current liabilities |
(8,095) |
(11,952) |
(10,762) |
(10,762) |
(10,762) |
(10,762) |
|||
Long Term Liabilities |
|
|
(7,221) |
(6,662) |
(28,383) |
(23,633) |
(10,006) |
(20,657) |
|
Long term borrowings |
0 |
0 |
(19,200) |
(19,200) |
(6,403) |
(17,884) |
|||
Finance lease obligations |
(4,840) |
(4,179) |
(3,574) |
(2,744) |
(1,914) |
(1,083) |
|||
Other long term liabilities |
(2,381) |
(2,484) |
(5,609) |
(1,689) |
(1,689) |
(1,689) |
|||
Net Assets |
|
|
172,562 |
145,092 |
116,875 |
97,976 |
103,595 |
95,789 |
|
CASH FLOW |
|||||||||
Operating Cash Flow |
|
|
(13,577) |
(22,317) |
(29,355) |
(5,670) |
(4,546) |
(7,382) |
|
Net Interest |
(583) |
(1,046) |
(431) |
(2,819) |
(2,857) |
(2,892) |
|||
Capex |
(193) |
(1,223) |
(335) |
(349) |
(363) |
(377) |
|||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
0 |
0 |
|||
Financing |
164 |
0 |
7,500 |
0 |
0 |
0 |
|||
Dividends |
0 |
0 |
0 |
0 |
0 |
0 |
|||
Other cash flow |
(6,224) |
4,479 |
13,917 |
(830) |
(830) |
(830) |
|||
Net Cash Flow |
(20,413) |
(20,106) |
(8,704) |
(9,667) |
(8,596) |
(11,481) |
|||
Opening net debt/(cash) |
|
|
(60,381) |
(39,920) |
(19,670) |
(11,005) |
(1,337) |
7,259 |
|
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
|||
Other |
(47) |
(144) |
39 |
0 |
0 |
0 |
|||
Closing net debt/(cash) |
|
|
(39,920) |
(19,670) |
(11,005) |
(1,337) |
7,259 |
18,739 |
|
Source: Edison Investment Research, Company data
|
|
Research: Financials
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