Evolva — Progressing towards break-even

Evolva (SW: EVE)

Last close As at 26/04/2024

0.10

0.00 (0.00%)

Market capitalisation

113m

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Research: Consumer

Evolva — Progressing towards break-even

Evolva’s H121 results demonstrate that the company is progressing towards its goal of being cash break-even by FY23. H1 revenue was up 60% y-o-y to CHF6.4m, and all segments witnessed an increase in sales. The contract manufacturer network continues to expand, and manufacturing scale-up and optimisation is yielding successful results. The company now expects to see positive gross profits from Q421. We trim our FY21 EBITDA forecasts slightly to reflect the guidance that EBITDA will be ‘somewhat below’ the previous year as manufacturing costs were higher during the start-up phase, but should normalise in H2 and FY22. Our fair value moves to CHF0.32/share.

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Consumer

Evolva

Progressing towards break-even

H121 results

Food & beverages

3 September 2021

Price

CHF0.17

Market cap

CHF158m

Net cash (CHFm) at 30 June 2021

13.1

Shares in issue

927m

Free float

100%

Code

EVE

Primary exchange

SIX Swiss Exchange

Secondary exchange

OTC US

Share price performance

%

1m

3m

12m

Abs

(5.1)

(7.7)

(32.9)

Rel (local)

(7.1)

(14.8)

(44.0)

52-week high/low

CHF0.26

CHF0.17

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

FY21 results

10 March 2022

AGM

12 April 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 H121 results demonstrate that the company is progressing towards its goal of being cash break-even by FY23. H1 revenue was up 60% y-o-y to CHF6.4m, and all segments witnessed an increase in sales. The contract manufacturer network continues to expand, and manufacturing scale-up and optimisation is yielding successful results. The company now expects to see positive gross profits from Q421. We trim our FY21 EBITDA forecasts slightly to reflect the guidance that EBITDA will be ‘somewhat below’ the previous year as manufacturing costs were higher during the start-up phase, but should normalise in H2 and FY22. Our fair value moves to CHF0.32/share.

Year end

Revenue (CHFm)

PBT*
(CHFm)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/19

11.6

(15.6)

(2.0)

0.0

N/A

N/A

12/20

7.5

(23.4)

(2.9)

0.0

N/A

N/A

12/21e

14.2

(18.6)

(2.1)

0.0

N/A

N/A

12/22e

27.5

(3.8)

(0.4)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Optimising costs

Evolva has transformed itself from an R&D-driven enterprise to a commercial company with a product-based revenue model. As it nears profit and cash break-even, it has focused on optimising its manufacturing capabilities and ensuring they are both stable and scalable. This should ensure that gross profits are positive by Q421, with a view to reaching cash break-even by FY23, and should stand the business in good stead for future growth.

Accelerating growth

Evolva witnessed growth across all segments during H121: Flavors & Fragrances products gained momentum during Q2, following some quieter quarters as a result of the pandemic; Health Ingredients saw ongoing strong demand across its segments; and Health Protection is focusing on end-user applications for the use of nootkatone in pest control. Resveratrol’s growth has accelerated as it has benefited from a pandemic-related spike in pet adoptions. Commercial interest has also been boosted by clinical studies initiated by Evolva demonstrating the product’s efficacy.

Valuation: Fair value of CHF0.32/share

We continue to value Evolva on a discounted cash flow (DCF) basis with a 25-year model, assuming cash break-even in FY23, in line with management guidance. Our fair value is unchanged as we trim our EBITDA forecasts to reflect the increased manufacturing costs in FY21, but this is offset by rolling forward our DCF. As a reminder, nootkatone contributes c 50% of our fair value for Evolva, with most of this coming from its use in pest control.

H121 results and forecasts

Total revenue was up 60% in the period, to CHF6.4m. Product-related revenue was up 58% to CHF6.0m, in line with management’s plans, and R&D revenue was up 100% to CHF0.4m, as part of the expanded development of an existing product. Gross profit decreased to a loss of CHF6.3m from a loss of CHF0.2m in H120 as a result of higher manufacturing costs (CHF4.8m above H120). These costs reflect the enlarged supplier base, the introduction of new manufacturing processes and the scaling up of production volumes. Total operating expenses therefore increased by 67% to CHF8.3m (including a non-recurring expense of CHF9.6m, which relates to the impairment of intellectual property and patents). Excluding the non-recurring item, operating expenses were down 10.5%, driven by reduced commercial and R&D expenses. Operating expenses are expected to normalise into H221 and FY22, with manufacturing start-up costs of CHF6.5m expected for FY21.

The operating loss for the period was CHF27m and the EBITDA loss for the period widened to CHF13m (loss of CHF8.3m in H120). Net cash at end H121 was CHF13.1m versus CHF9.7m at end FY20. We illustrate the key changes to our forecasts below. We have raised our product revenue forecasts in FY21 to reflect the improvement in momentum in Flavors & Fragrances, and the continued strength of demand in Health Ingredients. We have trimmed our FY21 EBITDA forecast to reflect the increased manufacturing costs.

Exhibit 1: Key forecast changes

CHFm

2021e

2022e

2023e

Old

New

Old

New

Old

New

Product revenue

11.1

13.5

27.0

27.0

52.8

53.4

R&D revenue

0.7

0.7

0.5

0.5

0.3

0.3

Total revenue

11.8

14.2

27.4

27.5

53.1

53.7

Gross profit

0.0

(2.2)

12.4

12.5

25.7

26.0

EBITDA

(15.1)

(17.3)

(2.5)

(2.5)

10.9

11.2

Operating profit

(23.0)

(25.2)

(10.4)

(10.3)

3.0

3.3

Source: Edison Investment Research

We continue to assume that cash and profit break-even for Evolva will occur in FY23, in line with management guidance. We forecast that the company will exhaust its cash reserves during FY21. We hence expect overall net debt of CHF5.1m at end FY21, including the balance of convertible loan notes issued since FY21. As a reminder, in June and December 2020 and May 2021, Evolva entered into an agreement with Nice & Green for the issue and subscription of up to CHF44m of convertible loan notes. As of the end of H121, Evolva has drawn tranches totalling CHF21.5m. Our current forecasts do not imply any further issuances of shares to redeem the convertible loan notes, but instead we treat the funding as debt.

Valuation

We detail our valuation in Exhibit 2. Our fair value is unchanged at CHF0.32/share due to foreign exchange movements and as we roll forward our DCF model, offset by a slight cut in our FY21 profit forecasts and an increased number of shares.

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 as an ingredient to support healthy blood sugar, and it has a significant addressable market (now disclosed as c CHF250m), but as it is the latest product to be added to Evolva’s roster, full-scale commercial production could be subject to delays (it is currently scheduled for Q422), and 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 per share (CHF)

Notes

Stevia (royalty stream)

86.1

0.09

Launched; peak sales: $600m; royalty stream: 5%

Resveratrol

37.6

0.04

Launched; peak sales: $140m; margin: 30%

Nootkatone

179.7

0.19

Launched; peak sales: $150m; margin: 40%

Valencene

15.2

0.02

Launched; peak sales: $10m; margin: 40%

R&D partnerships

5.0

0.01

Assume revenue continues to fall

Capex

-14.8

-0.02

Includes contribution to Cargill for commercialisation of EverSweet

Net cash/(debt)

-4.5

0.00

Forecast net debt at end FY21

Funding gap requirement

-10.1

-0.01

Total

294.1

0.32

Using last reported number of shares (927m)

Source: Edison Investment Research. Note: WACC = 12.5%.

Exhibit 3: Financial summary

CHF'000s

2018

2019

2020

2021e

2022e

2023e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

8,933

11,596

7,541

14,163

27,468

53,750

Cost of Sales

(6,816)

(6,305)

(9,783)

(16,403)

(15,001)

(27,771)

Gross Profit

2,117

5,292

(2,242)

(2,239)

12,467

25,979

EBITDA

 

 

(23,350)

(12,280)

(16,733)

(17,332)

(2,455)

11,185

Operating Profit (before GW and except.)

(24,827)

(14,067)

(18,397)

(18,946)

(3,754)

(18,714)

Intangible Amortisation

(5,909)

(6,060)

(6,508)

(6,508)

(6,508)

(6,508)

Exceptionals

0

0

0

0

0

0

Operating Profit

(30,736)

(20,128)

(24,905)

(25,222)

(10,323)

3,325

Net Interest

(622)

(1,486)

(4,978)

79

(18)

(74)

Other financial income

40

0

0

0

0

0

Profit Before Tax (norm)

 

 

(25,409)

(15,553)

(23,375)

(18,636)

(3,834)

9,758

Profit Before Tax (FRS 3)

 

 

(31,318)

(21,614)

(29,882)

(25,143)

(10,341)

3,251

Tax

2,104

(25)

18

0

0

0

Profit After Tax (norm)

(23,305)

(15,578)

(23,357)

(18,636)

(3,834)

9,758

Profit After Tax (FRS 3)

(29,214)

(21,639)

(29,864)

(25,143)

(10,341)

3,251

Average Number of Shares Outstanding (m)

770.6

770.4

809.3

874.4

926.9

874.4

EPS - normalised (c)

 

 

(3.0)

(2.0)

(2.9)

(2.1)

(0.4)

1.1

EPS - FRS 3 (c)

 

 

(3.8)

(2.8)

(3.7)

(2.9)

(1.1)

0.4

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

23.7

45.6

-29.7

-15.8

45.4

48.3

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

 

 

145,825

143,333

133,316

126,564

120,019

113,533

Intangible Assets

138,838

133,939

123,894

117,387

110,879

104,372

Tangible Assets

4,769

7,211

6,914

6,803

6,765

6,787

Other fixed assets

2,218

2,184

2,508

2,375

2,375

2,375

Current Assets

 

 

67,192

48,745

33,577

20,847

30,452

38,985

Stocks

4,040

5,392

9,125

15,580

23,348

29,562

Debtors

1,941

1,480

2,347

2,833

4,670

6,987

Cash

60,380

39,920

19,669

0

0

0

Other current assets

830

1,954

2,435

2,435

2,435

2,435

Current Liabilities

 

 

(14,705)

(12,295)

(15,139)

(16,579)

(16,274)

(19,052)

Creditors

(743)

(2,912)

(2,128)

(3,569)

(3,264)

(6,042)

Short term borrowings

0

0

(4,000)

0

0

0

Finance lease obligations

(782)

(1,289)

(1,059)

(1,059)

(1,059)

(1,059)

Other current liabilities

(13,180)

(8,095)

(7,952)

(11,952)

(11,952)

(11,952)

Long Term Liabilities

 

 

(4,150)

(7,221)

(6,662)

(10,030)

(22,881)

(18,046)

Long term borrowings

0

0

0

(4,546)

(18,443)

(14,654)

Finance lease obligations

(2,394)

(4,840)

(4,179)

(3,133)

(2,087)

(1,042)

Other long term liabilities

(1,756)

(2,381)

(2,484)

(2,351)

(2,351)

(2,351)

Net Assets

 

 

194,162

172,562

145,092

120,803

111,315

115,420

CASH FLOW

Operating Cash Flow

 

 

(23,247)

(13,577)

(22,317)

(21,977)

(11,511)

6,284

Net Interest

(360)

(583)

(1,046)

79

(18)

(74)

Capex

(364)

(193)

(1,223)

(1,272)

(1,322)

(1,375)

Acquisitions/disposals

0

0

0

0

0

0

Financing

(209)

164

0

0

0

0

Dividends

0

0

0

0

0

0

Other cash flow

(12,595)

(6,224)

(5,521)

(1,046)

(1,046)

(1,046)

Net Cash Flow

(36,775)

(20,413)

(30,106)

(24,216)

(13,897)

3,790

Opening net debt/(cash)

 

 

(97,184)

(60,381)

(39,920)

(19,670)

4,546

18,443

HP finance leases initiated

0

0

0

0

0

0

Other

(29)

(47)

(144)

0

0

0

Closing net debt/(cash)

 

 

(60,381)

(39,920)

(19,670)

4,546

18,443

14,654

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 £49,500 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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Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

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Frankfurt +49 (0)69 78 8076 960

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1185 Avenue of the Americas

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United States of America

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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

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

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 £49,500 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 2021 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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Vectron Systems — Return to profitability in H121

Vectron’s H121 results benefited from an uptick in revenue in Q221 as COVID-19 pressures abated and customers sought to comply with German regulations for point of sale (POS) systems. Its 66% growth in revenue year-on-year resulted in a significant improvement in EBITDA profitability over the same period. To counter the unpredictability of POS system sales and exploit the growing trend for online transactions, Vectron has developed digital services to supplement its hardware. The ongoing adoption of these services will be key to driving recurring revenue and share price upside.

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