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Research: Consumer
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.
Written by
Evolva |
Progressing towards break-even |
H121 results |
Food & beverages |
3 September 2021 |
Share price performance
Business description
Next events
Analysts
Evolva is a research client of Edison Investment Research Limited |
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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* |
EPS* |
DPS |
P/E |
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 |
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
|
|
Research: TMT
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.