We detail our valuation in Exhibit 1. Our fair value falls slightly to CHF0.60/share (from CHF0.65/share previously). We have cut our FY18 sales forecasts for all the key products in light of the guidance that product revenues will at least double in FY18. As discussed above, our product revenue forecast for FY18 falls from CHF7.3m to CHF5.0m (this compares to CHF2.0m reported for FY17). Our FY19 product revenue forecast falls from CHF22.0m to CHF19.4m (excluding revenue from R&D partnerships and grants). Assuming successful commercialisation, we expect a significant ramp-up in sales of EverSweet (stevia) and nootkatone. Note that we still assume break-even occurs in FY21, in line with management guidance. We now expect the company to end FY20 with CHF4.7m of net debt. We believe by that stage, with the product revenues ramping up, Evolva ought to be able to raise debt to cover its financing needs.
Exhibit 1: Summary of DCF valuation
Product |
Value (CHFm) |
Value/share (CHF) |
Notes |
Stevia (royalty stream) |
111.2 |
0.14 |
Launch date: 2018; peak sales: $600m; royalty stream: 5%. |
Resveratrol |
29.8 |
0.04 |
Launched; peak sales: $140m; likelihood of success 75%; margin: 30%. |
Nootkatone |
231.6 |
0.30 |
Launched; peak sales: $150m; likelihood of success 75%*; margin: 40%. |
Valencene |
18.0 |
0.02 |
Launched; peak sales: $10m; likelihood of success 90%; margin: 40%. |
Capex |
(24.7) |
(0.03) |
Includes investment of $18m for commercialisation of stevia with Cargill |
Net cash |
97.2 |
0.13 |
Reported net cash at end FY17 |
Total |
463.0 |
0.60 |
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 25% of our valuation, after adjusting for tax and capex, but note that we see greater value overall in nootkatone.
Our valuation purely reflects the products on which Evolva has chosen to concentrate, and we ascribe zero value 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.
Cargill and Evolva have reached a new agreement regarding their collaboration, which supersedes all previous agreements. Under the new agreement, Evolva will receive a royalty stream based on the sales of EverSweet. The royalty will be a mid-single digit percentage of sales. We have assumed 5%. The royalty will start to accrue as soon as EverSweet starts generating revenues. This will bring a positive contribution to Evolva significantly sooner than under previous agreements as, with a share of JV arrangement, Evolva would have had to bear its share of any start-up losses before seeing a positive contribution. We have left our assumptions unchanged for the underlying EverSweet market, and continue to expect peak sales of $600m, reached in FY24. This results in a royalty stream of $30m by FY24 (given a royalty rate of 5%), or $21m on a net basis according to our assumptions. Previously we assumed operating margins of 30% and a 30% JV arrangement. Furthermore, we previously applied a risk adjustment of 90% to stevia as it had not yet been launched, which we no longer apply. This resulted in a risk-adjusted net profit contribution of $34m, which is only slightly higher than the royalty stream we now forecast.
The new agreement, however, also means Evolva is required to make a much lower financial contribution to the facility in Blair, Nebraska, which was previously forecast to cost $45m over three years. Evolva must now contribute $18m, payable over the next 12 months.
Overall therefore, the NPV of EverSweet has decreased from CHF167m to CHF111m, but the NPV of our capex has moved from -CHF47m to -CHF25m. The overall reduction to Evolva’s NPV is 7%, and yet the risk profile has improved materially, as any risks associated with start-up/production issues will be entirely shouldered by Cargill, and no standalone project financing is required by Evolva (this was a condition of the old agreement).
Exhibit 2: Financial summary
|
|
CHF'000s |
2015 |
2016 |
2017 |
2018e |
2019e |
2020e |
Year end 31 December |
|
|
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
PROFIT & LOSS |
|
|
|
|
|
|
|
|
Revenue |
|
|
13,364 |
9,576 |
6,847 |
8,845 |
22,440 |
51,979 |
Cost of Sales |
|
|
0 |
(2,951) |
(4,698) |
(3,177) |
(9,815) |
(25,212) |
Gross Profit |
|
|
13,364 |
6,624 |
2,149 |
5,668 |
12,625 |
26,767 |
EBITDA |
|
|
(30,305) |
(33,965) |
(37,599) |
(35,247) |
(27,967) |
(13,613) |
Operating Profit (before GW and except.) |
(31,947) |
(36,078) |
(39,774) |
(35,976) |
(28,678) |
(35,976) |
Intangible Amortisation |
|
|
(3,779) |
(5,090) |
(5,126) |
(5,126) |
(5,126) |
(5,126) |
Exceptionals |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
Operating Profit |
|
|
(35,726) |
(41,169) |
(44,899) |
(41,101) |
(33,804) |
(19,439) |
Net Interest |
|
|
(129) |
497 |
(596) |
389 |
278 |
178 |
Other financial income |
|
|
0 |
(338) |
(482) |
0 |
0 |
0 |
Profit Before Tax (norm) |
|
|
(32,076) |
(35,919) |
(40,852) |
(35,587) |
(28,401) |
(14,135) |
Profit Before Tax (FRS 3) |
|
|
(35,855) |
(41,009) |
(45,977) |
(40,713) |
(33,526) |
(19,261) |
Tax |
|
|
4,067 |
5,160 |
7,023 |
4,886 |
4,023 |
2,311 |
Profit After Tax (norm) |
|
|
(28,113) |
(30,880) |
(33,851) |
(30,702) |
(24,377) |
(11,824) |
Profit After Tax (FRS 3) |
|
|
(31,788) |
(35,850) |
(38,954) |
(35,827) |
(29,503) |
(16,949) |
|
|
|
|
|
|
|
|
|
Average Number of Shares Outstanding (m) |
401.3 |
452.8 |
482.1 |
770.6 |
770.6 |
770.6 |
EPS - normalised (c) |
|
|
(7.0) |
(6.8) |
(7.0) |
(4.0) |
(3.2) |
(1.5) |
EPS - FRS 3 (c) |
|
|
(7.9) |
(7.9) |
(8.1) |
(4.6) |
(3.8) |
(2.2) |
Dividend per share (c) |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|
|
|
|
|
|
|
|
|
Gross Margin (%) |
|
|
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
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 |
|
|
143,457 |
141,356 |
132,125 |
138,876 |
139,669 |
134,498 |
Intangible Assets |
|
|
131,940 |
130,256 |
124,487 |
119,361 |
114,236 |
109,110 |
Tangible Assets |
|
|
8,431 |
7,522 |
5,208 |
5,085 |
5,003 |
4,958 |
Other fixed assets |
|
|
3,086 |
3,578 |
2,430 |
14,430 |
20,430 |
20,430 |
Current Assets |
|
|
88,780 |
56,880 |
107,697 |
70,435 |
47,374 |
41,124 |
Stocks |
|
|
2,217 |
5,687 |
8,009 |
5,223 |
7,529 |
11,743 |
Debtors |
|
|
2,785 |
2,139 |
1,831 |
2,181 |
3,689 |
8,545 |
Cash |
|
|
83,228 |
47,517 |
97,185 |
57,473 |
26,574 |
8,944 |
Other current assets |
|
|
550 |
1,537 |
673 |
5,558 |
9,582 |
11,893 |
Current Liabilities |
|
|
(7,385) |
(5,690) |
(12,261) |
(11,409) |
(11,339) |
(11,274) |
Creditors |
|
|
(1,182) |
(1,174) |
(1,933) |
(1,101) |
(1,046) |
(994) |
Short term borrowings |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
Finance lease obligations |
|
|
(969) |
(978) |
(781) |
(781) |
(781) |
(781) |
Other current liabilities |
|
|
(5,234) |
(3,537) |
(9,546) |
(9,527) |
(9,512) |
(9,500) |
Long Term Liabilities |
|
|
(21,437) |
(19,489) |
(6,840) |
(9,727) |
(13,750) |
(16,061) |
Long term borrowings |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
Finance lease obligations |
|
|
(4,134) |
(3,564) |
(2,400) |
(2,400) |
(2,400) |
(2,400) |
Other long term liabilities |
|
|
(17,303) |
(15,925) |
(4,440) |
(7,327) |
(11,350) |
(13,661) |
Net Assets |
|
|
203,416 |
173,057 |
220,721 |
188,175 |
161,954 |
148,287 |
|
|
|
|
|
|
|
|
|
CASH FLOW |
|
|
|
|
|
|
|
|
Operating Cash Flow |
|
|
(31,353) |
(33,551) |
(35,194) |
(27,496) |
(24,546) |
(17,153) |
Net Interest |
|
|
(376) |
(301) |
(379) |
389 |
278 |
178 |
Tax |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
Capex |
|
|
(1,865) |
(947) |
(582) |
(606) |
(630) |
(655) |
Acquisitions/disposals |
|
|
3,278 |
(210) |
0 |
0 |
0 |
0 |
Financing |
|
|
59,956 |
0 |
86,457 |
0 |
0 |
0 |
Dividends |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
Other cash flow |
|
|
(3,975) |
(677) |
(658) |
(12,000) |
(6,000) |
0 |
Net Cash Flow |
|
|
25,666 |
(35,686) |
49,644 |
(39,713) |
(30,898) |
(17,630) |
Opening net debt/(cash) |
|
|
(57,191) |
(83,228) |
(47,516) |
(97,185) |
(57,473) |
(26,575) |
HP finance leases initiated |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
Other |
|
|
371 |
(26) |
24 |
1 |
0 |
0 |
Closing net debt/(cash) |
|
|
(83,228) |
(47,516) |
(97,185) |
(57,473) |
(26,575) |
(8,944) |
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 |
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