We detail our valuation in Exhibit 1. Our fair value falls slightly to CHF0.65/share from CHF0.69/share previously. We have updated our model in light of the strategic review and equity financing discussed above. Our valuation now purely reflects the products on which Evolva has chosen to concentrate, and we ascribe a value of zero to all other alliances/collaborations and other projects. We recognise that the latter do retain some residual value, but for the sake of conservatism we err on the side of caution. Management has stated that if commercial partners were to express an interest in these existing projects (for example saffron or santalol), it would consider them.
Exhibit 1: Summary of DCF valuation
Product |
Value (CHFm) |
Value/share (CHF) |
Notes |
Stevia |
167.9 |
0.22 |
Launch date: 2018; peak sales: $600m; likelihood of success 90%; operating margin: 30%; profit share: 30%. |
Resveratrol |
29.8 |
0.04 |
Launched; peak sales: $140m; likelihood of success 75%; margin: 30%. |
Nootkatone |
234.4 |
0.30 |
Launched; peak sales: $150m; likelihood of success 75%*; margin: 40%. |
Valencene |
18.1 |
0.02 |
Launched; peak sales: $10m; likelihood of success 90%; margin: 40%. |
Capex |
(46.9) |
(0.06) |
Includes investment of $60m for commercialisation of stevia with Cargill |
Net cash |
99.4 |
0.13 |
Forecast net cash at end FY17 |
Total |
502.7 |
0.65 |
Using FY18 average number of shares throughout |
Source: Edison Investment Research. Note: WACC = 12.5%. *There is no developmental risk associated with nootkatone, but we have applied a risk adjustment due to uncertainty about the use of the product as an insect repellent.
We use a 25-year DCF valuation with a fade. Each product has varying peak sales, margins, ramp-up assumptions and probabilities of success, as detailed above. In each case, we reduce the R&D and operating expenditure after launch to reflect the lower level of investment required once the product is established on the market. We start to fade stevia in 2031 (year 13) and the other products in 2035 (year 17), and we also assume they become commoditised and their operating margins fall to the single digits, which is the level of commoditised food ingredients. Stevia remains a key product, at c 35% of our valuation, after adjusting for tax and capex, but note that we see greater value overall in nootkatone.
We have adjusted our model to better reflect the new focus on existing products. We now charge R&D costs and tax to each product line independently, and hence no longer charge a total R&D and total tax amount. This also aids comparison between stevia and the other products; as stevia will be produced via the JV with Cargill, it will appear as an associate on the P&L.
We have reviewed our peak sales and margin assumptions for each product and have trimmed our resveratrol peak sales assumption from $200m to $140m given management’s stated aim of focusing its R&D. Resveratrol initially had a wide range of potential applications, and inevitably over time there will be a narrower focus on the more promising areas, which is likely to be accelerated by management’s cost control initiatives. Our peak operating margin also falls from 40% to 30% as the resveratrol end-markets (anti-ageing, dietary supplements, etc) are competitive and Evolva is likely to have to make its pricing attractive to achieve commercial success. We have left our peak sales and margin assumptions unchanged for nootkatone, but now assume sales start to fade in 2035 (year 17) rather than in FY25. As a reminder, Evolva has signed an agreement with the US Centers for Disease Control and Prevention (CDC), which grants it exclusive worldwide rights to develop and commercialise nootkatone for the control of a wide range of disease and virus vectors.
Note that our model implies break-even during FY21, and hence the latest round of financing should be sufficient to see Evolva through until it reaches profitability. We note that the company still needs to raise some project financing relating to the Cargill agreement. Under the terms of the agreement, this financing must be ring-fenced and specific to the Cargill project. Given Evolva has just completed a successful rights issue and its financing position is secure for the foreseeable future, we believe that securing project financing for the Cargill agreement should be straightforward and the risks are low. That said, if Evolva failed to secure the project financing, under the terms of the agreement Cargill could force it into accepting a royalty stream rather than a profit share from the EverSweet JV. Given the need for significant financial contributions in terms of capex over the next few years and also beyond, in order to maintain the share of ownership, a royalty stream would result in a more rapid contribution to profit vis-à-vis owning a share of the JV. In addition, the risks would be lower for a royalty position, and hence a lower WACC for the project. Overall, therefore, the NPV of a royalty position is only somewhat less favourable than a JV.
Given the need for significant financial contributions not only over the next few years, but also beyond in order to keep the ownership share and the risks related to the profit margin management of EverSweet (that any business has), the WACC is different for an ownership share scenario from a WACC for a royalty position. All in all, this makes the NPV of a royalty position only somewhat less favorable.
We have also updated our near-term assumptions to reflect the outcome of the strategic and operational review. As management concentrates its efforts on transforming Evolva into an innovative ingredients company with a number of commercialised products, we believe milestone-based R&D partnerships will be wound down to reduce cash burn and allow better focus on the existing product suite. Therefore, revenue from R&D partnerships is likely to fall materially in the near term. Costs are also likely to be lower as the operational review will lead to a significant reduction in headcount, particularly around R&D.
All in all, we note that our overall valuation moves from CHF297.8m to CHF502.7m. We have updated our model to incorporate R&D expenditure, capex and tax into each product stream, in order to better reflect the multiple strands of the business, and the fact that the success or otherwise of one product stream should have little effect on the others. Our nootkatone value increases (from CHF121m) in light of the fade now occurring later, as described above. Our resveratrol value falls due to the lower peak sales assumption. As we mentioned above, we no longer ascribe a value to any of the alliances/collaborations, and our R&D forecast falls materially as management has indicated that R&D expenditure will be cut significantly. On a per-share basis, however, our valuation falls slightly (from CHF0.69 to CHF0.65) as a result of the equity issuance (the number of shares has risen from 474m to 771m).
Exhibit 2: Financial summary
|
|
CHF'000s |
2015 |
2016 |
2017e |
2018e |
2019e |
Year end 31 December |
|
|
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
PROFIT & LOSS |
|
|
|
|
|
|
|
Revenue |
|
|
13,364 |
9,530 |
7,392 |
11,339 |
25,223 |
Cost of Sales |
|
|
0 |
(2,951) |
(1,855) |
(5,096) |
(13,186) |
Gross Profit |
|
|
13,364 |
6,578 |
5,536 |
6,242 |
12,037 |
EBITDA |
|
|
(30,305) |
(34,011) |
(29,803) |
(28,689) |
(22,441) |
Operating Profit (before GW and except.) |
(31,947) |
(36,124) |
(31,947) |
(36,124) |
(30,856) |
Intangible Amortisation |
|
|
(3,779) |
(5,090) |
(5,090) |
(5,090) |
(5,090) |
Exceptionals |
|
|
0 |
0 |
0 |
0 |
0 |
Operating Profit |
|
|
(35,726) |
(41,215) |
(35,947) |
(34,823) |
(28,572) |
Net Interest |
|
|
(129) |
497 |
(60) |
418 |
293 |
Other financial income |
|
|
0 |
(338) |
0 |
449 |
3,595 |
Profit Before Tax (norm) |
|
|
(32,076) |
(35,965) |
(30,916) |
(28,866) |
(19,593) |
Profit Before Tax (FRS 3) |
|
|
(35,855) |
(41,055) |
(36,006) |
(33,956) |
(24,684) |
Tax |
|
|
4,067 |
5,160 |
0 |
0 |
0 |
Profit After Tax (norm) |
|
|
(28,113) |
(30,926) |
(30,916) |
(28,866) |
(19,593) |
Profit After Tax (FRS 3) |
|
|
(31,788) |
(35,896) |
(36,006) |
(33,956) |
(24,684) |
|
|
|
|
|
|
|
|
Average Number of Shares Outstanding (m) |
401.3 |
452.8 |
558.3 |
770.6 |
770.6 |
EPS - normalised (c) |
|
|
(7.0) |
(6.9) |
(5.5) |
(3.7) |
(2.5) |
EPS - FRS 3 (c) |
|
|
(7.9) |
(8.0) |
(6.4) |
(4.4) |
(3.2) |
Dividend per share (c) |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|
|
|
|
|
|
|
|
Gross Margin (%) |
|
|
N/A |
N/A |
N/A |
N/A |
N/A |
EBITDA Margin (%) |
|
|
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 |
|
|
|
|
|
|
|
|
BALANCE SHEET |
|
|
|
|
|
|
|
Fixed Assets |
|
|
143,457 |
141,356 |
143,243 |
170,134 |
170,068 |
Intangible Assets |
|
|
131,940 |
130,256 |
125,165 |
120,075 |
114,985 |
Tangible Assets |
|
|
8,431 |
7,522 |
7,454 |
7,435 |
7,460 |
Other fixed assets |
|
|
3,086 |
3,578 |
10,624 |
42,624 |
47,624 |
Current Assets |
|
|
88,780 |
56,880 |
109,969 |
50,939 |
28,141 |
Stocks |
|
|
2,217 |
5,687 |
6,608 |
8,378 |
10,115 |
Debtors |
|
|
2,785 |
2,139 |
2,430 |
2,796 |
4,146 |
Cash |
|
|
83,228 |
47,517 |
99,394 |
38,228 |
12,342 |
Other current assets |
|
|
550 |
1,537 |
1,537 |
1,537 |
1,537 |
Current Liabilities |
|
|
(7,385) |
(5,690) |
(5,601) |
(5,547) |
(5,496) |
Creditors |
|
|
(1,182) |
(1,174) |
(1,086) |
(1,032) |
(980) |
Short term borrowings |
|
|
0 |
0 |
0 |
0 |
0 |
Finance lease obligations |
|
|
(969) |
(978) |
(978) |
(978) |
(978) |
Other current liabilities |
|
|
(5,234) |
(3,537) |
(3,537) |
(3,537) |
(3,537) |
Long Term Liabilities |
|
|
(21,437) |
(19,489) |
(18,511) |
(17,532) |
(16,554) |
Long term borrowings |
|
|
0 |
0 |
0 |
0 |
0 |
Finance lease obligations |
|
|
(4,134) |
(3,564) |
(2,586) |
(1,607) |
(629) |
Other long term liabilities |
|
|
(17,303) |
(15,925) |
(15,925) |
(15,925) |
(15,925) |
Net Assets |
|
|
203,416 |
173,057 |
229,100 |
197,994 |
176,160 |
|
|
|
|
|
|
|
|
CASH FLOW |
|
|
|
|
|
|
|
Operating Cash Flow |
|
|
(31,353) |
(33,597) |
(30,254) |
(29,580) |
(19,135) |
Net Interest |
|
|
(376) |
(301) |
(60) |
418 |
293 |
Tax |
|
|
0 |
0 |
0 |
0 |
0 |
Capex |
|
|
(1,865) |
(947) |
(985) |
(1,025) |
(1,066) |
Acquisitions/disposals |
|
|
3,278 |
(210) |
0 |
0 |
0 |
Financing |
|
|
59,956 |
0 |
89,200 |
0 |
0 |
Dividends |
|
|
0 |
0 |
0 |
0 |
0 |
Other cash flow |
|
|
(3,975) |
(677) |
(5,978) |
(30,978) |
(5,978) |
Net Cash Flow |
|
|
25,666 |
(35,731) |
51,922 |
(61,165) |
(25,886) |
Opening net debt/(cash) |
|
|
(57,191) |
(83,228) |
(47,471) |
(99,394) |
(38,228) |
HP finance leases initiated |
|
|
0 |
0 |
0 |
0 |
0 |
Other |
|
|
371 |
(26) |
1 |
(1) |
1 |
Closing net debt/(cash) |
|
|
(83,228) |
(47,471) |
(99,394) |
(38,228) |
(12,342) |
Source: Edison Investment Research, company data
Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Evolva and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent. |
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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 295 Madison Avenue, 18th Floor 10017, New York US |
Sydney +61 (0)2 8249 8342 Level 12, Office 1205 95 Pitt Street, Sydney NSW 2000, Australia |
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Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Evolva and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent. |
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 295 Madison Avenue, 18th Floor 10017, New York US |
Sydney +61 (0)2 8249 8342 Level 12, 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 295 Madison Avenue, 18th Floor 10017, New York US |
Sydney +61 (0)2 8249 8342 Level 12, Office 1205 95 Pitt Street, Sydney NSW 2000, Australia |
|
