| goetzpartners securities Limited Evotec SE (EVT-DE): Macro trend drives strong start to the year 16-May-2019 / 14:08 GMT/BST Free to access research and investor meetings in a post-MiFID2 world. This research report is intended for use only by persons who qualify as professional investors or eligible counterparties (institutional investors) in the applicable jurisdiction, and not by any private individuals or other persons who qualify as retail clients. Published to the market and investors on 16th May 2019 @ 6.59am (BST). Evotec SE (EVT-DE): Macro trend drives strong start to the year Recommendation: OUTPERFORM Target Price: EUR28.00 Current Price: EUR23.33 (CoB on 15th May 2019) KEY TAKEAWAY Evotec reported strong Q1/2019 results that comfortably exceeded our and consensus estimates on the top and bottom line, driven by solid performance across both business segments (EVT Execute and EVT Innovate). Once again, the results reflect that Evotec is well positioned to benefit from the accelerating macro trend towards external innovation in drug discovery and beyond. On the results call, management stated that "we comfortably confirm our guidance", which may appear conservative in light of Q1 performance. We have made small upward revisions to our FY2019 forecasts, which are marginally above company outlook, and believe that the risk to our numbers is to the upside. We reiterate our OUTPERFORM recommendation and EUR28 target price, which is set at a premium to our fair value of EUR25, as we expect Evotec shares to benefit from positive momentum and scarcity value. Modest upward revisions to 2019E - 2023E forecasts. Profitable growth to continue Q1/2019 revenues came in at EUR104m (+31% YoY) and adjusted EBITDA at EUR30m (+114% YoY), 16% and 50% above our forecasts, respectively (CHART 1). As such, Evotec has already achieved more than one-quarter of FY2019 outlook, which is unchanged at c.10% revenue and adjusted EBITDA growth to c.EUR400m and c.EUR101m, respectively. We conservatively raised 2019E revenues by only 2% to EUR411m and adj. EBITDA by 3% to EUR104m (CHART 2) but are confident that Evotec will continue to deliver robust growth for the remainder of the year and is on track to meet or exceed our projections. For 2020E to 2023E, we lifted revenues by 1% and adj. EBITDA by up to 3%. Importantly, despite investing up to EUR40m in R&D this year, the highest level in the company's history, we expect Evotec to remain highly cash generative. We forecast a YE2019E cash balance (cash and cash equivalents plus investments) of EUR205m, up from EUR142m at the end of Q1/2019, representing a net cash position of EUR87m vs. EUR40m at YE2018. Trend towards virtual biotech model and capital elasticity drive demand Biotech companies accounted for 46% of Q1/2019 revenues, up from 35% in FY2018 and 26% in FY2017, while the contribution from large pharma declined to 31%, from 34% and 45% in prior years. This mirrors the ongoing trend towards virtual (lean and asset-light) biotech companies, which outsource up to 100% of their R&D work to service providers. The trend is particularly strong in the East Coast of the US, where both the venture capital ("VC") and public market funding environment have been very strong and show no sign of abating following a record-breaking VC funding year in 2018. Another important driver management highlighted during the results call are foundations, which accounted for 6% of Q1/2019 revenues. There are over 400 relevant foundations worldwide that are now increasingly participating in biotech R&D. Since they rarely have the infrastructure needed to carry out drug R&D work, they are highly reliant on fully integrated and sophisticated innovation partners such as Evotec. Long-term structural growth story Evotec is a long-term structural growth story. We expect the positive momentum to continue for many years to come, driven by: (1) Increasing outsourcing of R&D across the value chain as pharma and biotech companies look for external innovation partners to shift fixed into variable costs, shorten development times and improve success rates; (2) consolidation in the fragmented contract research organisation ("CRO") industry; (3) substantial upside from Evotec's partnered / co-owned pipeline, the value of which grows as existing projects advance through clinical development and new ones are added. We understand that the average deal has a royalty rate of 8% and approx. EUR200m in total milestones, with induced pluripotent stem cell ("iPSC") deals above these averages; (4) leadership in cutting-edge technology platforms, particularly iPSCs, artificial intelligence ("AI") / machine learning ("ML"), sophisticated pan-omics (e.g. genomics, proteomics, transcriptomics), and targeted protein degradation. Kind regards, Brigitte de Lima, PhD, CFA | Research Analyst goetzpartners Healthcare Research Team | Research Team goetzpartners securities Limited The Stanley Building, 7 Pancras Square, London, N1C 4AG, England, UK. T +44 (0) 203 859 7725 | brigitte.delima@goetzpartners.com / healthcareresearch@goetzpartners.com www.goetzpartnerssecurities.com goetzpartners securities LinkedIn page Registered in England No. 04684144. Managing Directors: Dr. Stephan Goetz, Martin Brunninger and Ulrich Kinzel. goetzpartners securities Limited - Team Members Co-Heads / Senior Management - Martin Brunninger and Ulrich Kinzel. Equity Research Analysts - Brigitte de Lima, Chris Redhead, Martin Piehlmeier and Kieron Banerjee. Sales - Erland Sternby and Danny de Jong. Corporate Finance - Ulrich Kinzel, Wolf Dornbusch and Youchen Xin. Corporate Access and IR - Tanya Tracey and Bettina Ellinghorst. Compliance & Research Production - Paul W. Dunne. Click here to see our privacy policy. GPSL has a formal client relationship with Evotec SE. GPSL publishes and distributes "Corporate Issuer Sponsored" Research. Our Corporate Issuer Sponsored Research and investor meetings (e.g. NDRs, 1 to 1 meetings) are free to access and attend and is not classified as an inducement in a post-MiFID2 world, this is because the issuer is paying GPSL. GPSL does not offer any execution or market making services. This is a marketing communication as defined by the Financial Conduct Authority ("FCA"). The information herein is considered to be an acceptable minor non-monetary benefit as defined under FCA COBS 2.3A19(5). In accordance with the General Data Protection Regulation ("GDPR") - if you would like to be removed / unsubscribed from our CRM (also please note that you are free to contact GPSL at any time in the future to have your e-mail subscription amended), please e-mail: researchproduction@goetzpartners.com About GPSL: goetzpartners securities Limited is a member of the goetzpartners group, and a leading pan European investment bank and research company. We bring together a wide range of expertise, insights and innovations to advance the interests of our clients around the world. The fast-changing environment brings challenges for businesses and investors. Research innovation, digital transformation and disruptive business ideas reshuffle the corporate world at a relentless pace. Our sector knowledge and our global footprint bring together corporate intelligence and a deep understanding of the industry with a wide network of top decision makers. These collective insights help our clients to stay at the leading edge of change. This research report is intended for use only by persons who qualify as professional investors or eligible counterparties (institutional investors) in the applicable jurisdiction, and not by any private individuals or other persons who qualify as retail clients. This communication (including any attachments) from goetzpartners securities Limited ("GPSL") is confidential and may contain information which is proprietary, privileged or otherwise legally protected against unauthorised use or disclosure. If you receive this communication in error or are not the intended recipient of this communication, please delete and destroy all copies in your possession, notify the sender that you have received this communication, and note that any review or dissemination of, or the taking of any action in reliance on this communication is expressly prohibited. GPSL shall not be liable for the improper or incomplete transmission of the information contained in this communication nor for any delay in its receipt or damage to your system. GPSL does not guarantee that the integrity of this communication has been maintained nor that this communication is free of viruses, interceptions or interference and makes no warranties in relation to these matters. This is not an offer or a solicitation to buy or sell securities or investment products, or an official confirmation. GPSL record electronic and phone communications in accordance with FCA and MiFID2 regulations, they will be monitored for regulatory and training purposes. GPSL is authorised and regulated by the Financial Conduct Authority of the United Kingdom (Firm Reference Number: 225563). Click on the following link for the GPSL MiFID2 Investor Guidance Notice GPSL Equity Research publications are available on the following aggregators and via news distribution circuits (For Institutional Use Only): AlphaMetry, AlphaSense, Bloomberg (GOET), Capital IQ, EQS, FACTSET, ResearchFN, Research Tree, RNS Reach, Sentieo and Thomson Reuters. Please copy the below link and paste it into your browser for the full pdf version of the equity research report: Free to access research and investor meetings in a post-MiFID2 world. This research report is intended for use only by persons who qualify as professional investors or eligible counterparties (institutional investors) in the applicable jurisdiction, and not by any private individuals or other persons who qualify as retail clients. Dissemination of a CORPORATE NEWS, transmitted by EQS Group. The issuer is solely responsible for the content of this announcement. |
812485 16-May-2019
