Evolva — A new era

Evolva (SW: EVE)

Last close As at 22/06/2024

0.10

0.00 (0.00%)

Market capitalisation

113m

More on this equity

Research: Consumer

Evolva — A new era

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.

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Written by

Consumer

Evolva

A new era

FY21 results

Food & beverages

18 March 2022

Price

CHF0.115

Market cap

CHF119m

Net cash (CHFm) at 31 December 2021

11.0

Shares in issue

844.0m

Free float

100%

Code

EVE

Primary exchange

SIX Swiss Exchange

Secondary exchange

OTC US

Share price performance

%

1m

3m

12m

Abs

(12.5)

(9.1)

(43.3)

Rel (local)

(12.4)

(4.2)

(48.6)

52-week high/low

CHF0.21

CHF0.12

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 Flavors and Fragrances, Health Ingredients and Health Protection.

Next events

AGM

12 April 2022

H1 results

August 2022

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’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*
(CHFm)

EPS*
(c)

DPS
(c)

P/E
(x)

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
(CHFm)

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


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 £60,000 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.

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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 2022 Edison Investment Research Limited (Edison).

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

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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

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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 £60,000 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 2022 Edison Investment Research Limited (Edison).

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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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Research: Financials

CoinShares — Strong earnings and new activities in Q421

CoinShares International (CS) continued to broaden its business model by 1) entering the business to customer (B2C) segment with the acquisition of Napoleon Crypto, 2) commencing decentralised finance (DeFi) yield farming operations, as well as 3) launching new exchange traded products (ETPs). CS’s new investments (both in new business verticals and capital markets activities) are fuelled by strong cash generation, primarily from XBT Provider unit redemptions and CSCM gains (with FY21 cash inflows of £28.8m and £62.2m, respectively). While digital asset prices have retraced visibly from the November 2021 highs, we see continued signs of mainstream crypto adoption, representing an important secular tailwind.

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