Last close As at 05/08/2026
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Research: Consumer
A 15-day public review period for nootkatone has started in the US. All studies submitted to the US Environment Protection Agency (EPA) have been accepted and the review period allows the general public to share their comments with the agency. We believe the public notice period is largely a formality and expect the EPA to complete the registration of nootkatone shortly thereafter. Nootkatone use will then be allowed in pest control. Following the delay to the approval process announced in March 2019, this comes as good news for the financial trajectory of the business.
Written by
Evolva |
Nootkatone green light nears |
EPA update |
Food & beverages |
3 July 2020 |
Share price performance
Business description
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Analysts
Evolva is a research client of Edison Investment Research Limited |
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A 15-day public review period for nootkatone has started in the US. All studies submitted to the US Environment Protection Agency (EPA) have been accepted and the review period allows the general public to share their comments with the agency. We believe the public notice period is largely a formality and expect the EPA to complete the registration of nootkatone shortly thereafter. Nootkatone use will then be allowed in pest control. Following the delay to the approval process announced in March 2019, this comes as good news for the financial trajectory of the business.
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 |
11.5 |
(15.6) |
(2.0) |
0.0 |
N/A |
N/A |
12/20e |
10.7 |
(13.2) |
(1.6) |
0.0 |
N/A |
N/A |
12/21e |
18.8 |
(8.1) |
(1.0) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
EPA review
Nootkatone is already used as a fragrance ingredient. Evolva, however, identified a potential use in pest control, in particular as an active ingredient against ticks and mosquitoes. Evolva collaborated with the Centers for Disease Control and Prevention and the Biomedical Advanced Research and Development Authority and received funds from them. In March 2019, the EPA identified an issue with one of the studies submitted and requested more information. Evolva submitted all further information by September 2019 and the approval process seems to be almost complete.
Pest control opens a significant market
The advantage of using nootkatone in pest control is that it is a safe and familiar ingredient. Nootkatone is extracted from the bark of Alaskan Yellow Cedar trees and grapefruit skin and has a fresh scent. Obtaining nootkatone from nature is very expensive and not sustainable. Evolva can produce a 98% pure nature-identical nootkatone by combining its yeast fermentation process with a proprietary conversion technique. The pest control market is significantly larger than nootkatone’s use in fragrance. Our assumption remains of CHF150m of peak sales for the product, with the peak achieved in 2026.
Valuation: Fair value CHF0.41/share
We have updated our model to reflect current FX. We continue to value Evolva on a DCF basis with a 25-year model, assuming cash break-even in FY23, in line with management guidance. Overall, our fair value decreases slightly to CHF0.41/share (from CHF0.42/share previously) given the small movement in FX rates. As a reminder, nootkatone contributes c 50% of our fair value for Evolva, with most of this coming from use in pest control.
Valuation
We detail our valuation in Exhibit 1. Our fair value decreases to CHF0.41/share as we have updated our model for movements in FX rates. All our other assumptions are unchanged, including that cash break even will occur in FY23.
We note Evolva’s recent announcement on the issuance of convertible notes up to a maximum of CHF12m over 12 months to Nice & Green, a Swiss corporate financing company. The principal amount of each note issuance is either repayable in cash or by way of conversion into Evolva ordinary shares and the repayment method is at Evolva’s discretion. The conversion price will be 95% of the lowest daily VWAP during the six trading days preceding the conversion. The financing facility will be used to finance investments in connection with Evolva’s expansion and can be drawn in tranches. It creates financial flexibility for Evolva at a reasonable cost.
As a reminder, at the FY19 results in March management commented that to finance future growth until cash break-even, the company was evaluating multiple options including a capital increase. Management had stated that minimising dilution to existing shareholders was one of its aims. The announcement regarding the convertible notes should provide enough financial flexibility. Our current forecasts assume the company remains cash positive until it breaks even on a cash basis in FY23 (we forecast net cash of CHF8m at end FY22). If the cash burn were to accelerate beyond our forecasts, the headroom of CHF8m is rather limited and the convertible notes should help to bridge the gap.
|
Exhibit 1: Summary of DCF valuation |
|||
Product |
Value |
Value/share (CHF) |
Notes |
Stevia (royalty stream) |
83.7 |
0.10 |
Launched; peak sales: $600m; royalty stream: 5% |
Resveratrol |
21.9 |
0.03 |
Launched; peak sales: $140m; margin: 30% |
Nootkatone |
164.2 |
0.20 |
Launched; peak sales: $150m; margin: 40% |
Valencene |
13.9 |
0.02 |
Launched; peak sales: $10m; margin: 40% |
R&D partnerships |
19.3 |
0.02 |
Assume revenue continues to fall |
Capex |
-2.5 |
0.00 |
Includes contribution to Cargill for commercialisation of EverSweet |
Net cash |
39.9 |
0.05 |
Reported net cash at end FY19 |
Total |
340.5 |
0.41 |
Using FY20 average number of shares throughout |
Source: Edison Investment Research. Note: WACC = 12.5%.
Exhibit 2: 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 |
11,543 |
10,671 |
18,836 |
29,614 |
Cost of Sales |
(4,698) |
(6,816) |
(6,305) |
(3,577) |
(6,615) |
(11,770) |
||
Gross Profit |
2,119 |
2,117 |
5,238 |
7,093 |
12,221 |
17,843 |
||
EBITDA |
|
|
(37,629) |
(23,350) |
(12,333) |
(12,104) |
(6,985) |
(1,653) |
Operating Profit (before GW and except.) |
(39,804) |
(24,827) |
(14,120) |
(13,330) |
(8,222) |
(2,684) |
||
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) |
(20,181) |
(19,391) |
(14,282) |
(8,745) |
||
Net Interest |
(596) |
(622) |
(1,486) |
160 |
96 |
53 |
||
Other financial income |
(482) |
40 |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
(40,882) |
(25,409) |
(15,606) |
(13,171) |
(8,125) |
(2,631) |
Profit Before Tax (FRS 3) |
|
|
(46,007) |
(31,318) |
(21,667) |
(19,231) |
(14,186) |
(8,692) |
Tax |
7,023 |
2,104 |
(25) |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(33,881) |
(23,305) |
(15,632) |
(13,171) |
(8,125) |
(2,631) |
||
Profit After Tax (FRS 3) |
(38,984) |
(29,214) |
(21,692) |
(19,231) |
(14,186) |
(8,692) |
||
Average Number of Shares Outstanding (m) |
482.1 |
770.6 |
770.4 |
810.0 |
823.2 |
823.2 |
||
EPS – normalised (c) |
|
|
(7.0) |
(3.0) |
(2.0) |
(1.6) |
(1.0) |
(0.3) |
EPS – FRS 3 (c) |
|
|
(8.1) |
(3.8) |
(2.8) |
(2.4) |
(1.7) |
(1.1) |
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
31.1 |
23.7 |
45.4 |
66.5 |
64.9 |
60.3 |
||
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 |
137,824 |
129,569 |
120,968 |
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 |
3,760 |
2,594 |
868 |
||
Current Assets |
|
|
107,697 |
67,192 |
48,745 |
33,813 |
28,960 |
31,226 |
Stocks |
8,009 |
4,040 |
5,392 |
6,402 |
11,302 |
17,768 |
||
Debtors |
1,831 |
1,941 |
1,480 |
1,387 |
2,449 |
3,850 |
||
Cash |
97,185 |
60,380 |
39,920 |
24,070 |
13,256 |
7,654 |
||
Other current assets |
673 |
830 |
1,954 |
1,954 |
1,954 |
1,954 |
||
Current Liabilities |
|
|
(12,261) |
(14,705) |
(12,295) |
(11,036) |
(12,439) |
(14,819) |
Creditors |
(1,933) |
(743) |
(2,912) |
(1,652) |
(3,055) |
(5,436) |
||
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) |
(3,969) |
Long term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
||
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 |
154,464 |
141,037 |
133,405 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
(35,224) |
(23,247) |
(13,631) |
(14,672) |
(9,618) |
(4,354) |
Net Interest |
(379) |
(360) |
(583) |
160 |
96 |
53 |
||
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) |
(1,084) |
(1,084) |
(1,084) |
||
Net Cash Flow |
49,614 |
(36,775) |
(20,467) |
(15,797) |
(10,814) |
(5,601) |
||
Opening net debt/(cash) |
|
|
(47,516) |
(97,184) |
(60,381) |
(39,867) |
(24,070) |
(13,256) |
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) |
(39,867) |
(24,070) |
(13,256) |
(7,654) |
Source: Evolva, Edison Investment Research
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Research: Industrials
The Norcros operating companies largely performed relatively well in challenging market conditions (in both the UK and South Africa) in FY20 though year end trading was affected by COVID-19 lockdowns, as flagged previously. The group’s financial position appears robust following management actions (including foregoing an FY20 final dividend) and well-placed to both contend with weaker near-term markets and the pursuit of market share gains from a position of relative competitive strength. Our estimates remain suspended at this time.