AI assistant
Evotec SE — Earnings Release 2011
Nov 12, 2011
151_rns_2011-11-12_c27c4649-cd0b-4ab8-8c13-b63abe35b8ae.pdf
Earnings Release
Open in viewerOpens in your device viewer
-
Recommendation: BUY(BUY)
Risk: Medium (Medium) Price Target: EUR 3.60 (3.60)
3Q/2011 figures: Another strong quarter
- On 10 November, Evotec again reported strong 3Q/11 and 9M/11 results. Results were positively impacted in 3Q by a USD 10m (EUR 6.9m) upfront payment from a partnering signed with Roche. Revenues for 9M/11 increased to EUR 59.7m (PY: EUR 38.8m; +54%) incl. EUR 8.7m (PY: EUR 0.2m) from the acquisitions of DeveloGen, Kinaxo and Compound Focus. R&D expenses increased to EUR 6.8m (PY: EUR 4.2m; +62%), mainly from the strategic build-up of Evotec"s beta cell franchise "CureBeta" and the inclusion of Evotec Göttingen and Evotec Munich R&D expenses. Operating income for 9M/11 was EUR 9.5m (PY: EUR 1.0 m). The Company continues to operate at a strong gross margin of more than 40%. Liquidity including cash, cash equivalents and investments incl. long-term financial assets amounted to EUR 60.4m (as of 30 September 2011).
- In 2011 total Group revenues are expected to grow by ~40%, leading to revenues of EUR 77 to 79m. 2011 year-end liquidity target is >EUR 60m at constant year-end 2010 currencies. R&D expenses are expected to increase to ~EUR 10m from 2010 levels. The company expects operating result before impairment charges, if any, is expected to be profitable and improve over 2010. According to, management"s assessment the order backlog is very upbeat and provides a firm basis for revenue growth in 2012.
- For FY 2011 we expect sales to reach the upper range of company"s guidance at EUR 79m. Due to the notably higher R&D expenses expected in 4Q we forecast EBIT for the entire FY 2011 to amount to EUR 7.2m, which is below 9M/11 operating result.
- We leave our price target at EUR 3.60 unchanged and retain BUY recommendation.
| Key data | ||||||
|---|---|---|---|---|---|---|
| Y/E 31.12., EUR m | 2008 | 2009 | 2010 | 2011E | 2012E | 2013E |
| Revenues | 39.6 | 42.7 | 55.3 | 79.0 | 83.6 | 92.2 |
| Gross profit | 17.6 | 18.4 | 24.3 | 36.6 | 41.0 | 47.0 |
| EBITDA | -68.4 | -38.2 | 6.5 | 12.9 | 11.5 | 16.8 |
| EBIT | -73.2 | -42.3 | 1.7 | 7.2 | 6.6 | 11.8 |
| Net income/loss | -78.3 | -45.5 | 3.0 | 6.1 | 5.2 | 9.6 |
| EPS | -0.82 | -0.43 | 0.03 | 0.05 | 0.04 | 0.08 |
| CPS | -0.43 | -0.20 | 0.00 | 0.10 | 0.07 | 0.00 |
| Gross margin | 44.5% | 43.2% | 44.1% | 46.3% | 49.0% | 51.0% |
| EBITDA margin | -172.7% | -89.6% | 11.7% | 16.3% | 13.7% | 18.2% |
| EBIT margin | -184.8% | -99.1% | 3.1% | 9.1% | 7.9% | 12.8% |
| EV/Sales | 6.3 | 5.9 | 4.5 | 3.2 | 3.0 | 2.7 |
Source: Evotec AG; CBS Research AG;
www.cbseydlerresearch.ag
11 November 2011
Please notice the information on the preparation of this document, the disclaimer, the advice regarding possible conflicts of interests, and the mandatory information required by § 34b WpHG (Securities Trading Law) at the end of this document. This financial analysis in accordance with § 34b WpHG is exclusively intended for distribution to individuals that buy or sell financial instruments at their own account or at the account of others in connection with their trading activities, occupation, or employment.
Brief update on CRO industry
The global drug discovery market reached USD 8.3bn in 2010. According to Kalorama research the market is expected to grow with 15% CAGR over the period 2010-15E reaching USD 16.7bn in 2015E.
While Chemistry Services (CAGR 10-15E: 13%) continue to remain traditionally dominant segment among drug discovery services, the overall market growth is expected to be driven particularly by Biology Services (CAGR 10-15E: 19%). Also Lead Optimisation Services are expected to grow rapidly with CAGR 10-15E of 15%. The estimated average growth rate over 2010-15E of Screening Services is expected to be moderate with 7%.
Contract drug discovery services by market segment: Revenues in USD bn 2006 2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E CAGR 06-10 CAGR 10-15E
| Total drug discovery serivces | 4.6 | 5.4 | 6.3 | 7.2 | 8.3 | 9.6 | 11.0 | 12.6 | 14.5 | 16.7 | 16% | 15% |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Lead Optimisation Services | 1.0 | 1.2 | 1.4 | 1.7 | 2.0 | 2.3 | 2.6 | 3.0 | 3.5 | 4.0 | 20% | 15% |
| Screening Services | 0.5 | 0.5 | 0.5 | 0.6 | 0.6 | 0.6 | 0.6 | 0.7 | 0.7 | 0.8 | 5% | 7% |
| Biology Services | 1.2 | 1.5 | 1.8 | 2.1 | 2.5 | 3.0 | 3.6 | 4.2 | 5.0 | 6.0 | 20% | 19% |
| Chemistry Services | 2.0 | 2.2 | 2.5 | 2.8 | 3.2 | 3.7 | 4.2 | 4.7 | 5.3 | 5.9 | 12% | 13% |
Source: Kalorama Information; CBS Research AG;
Thus, as a result of these trends the market share of Chemical Services will shrink to 35% in 2015E (Currently ~39%), that will be offset by increased share of Biology Services segment 36% in 2015E (Currently 30%). The revenues in Screening Services are expected to remain flat in absolute terms in medium run, while the market share of these services will decrease to 5% (Currently 7%). The market share of Lead Optimisation Services is expected to remain constant over the period 2010-15E.
Contract drug discovery services by market segment: Share market
| 2006 2007 2008 2009 | 2010 2011E 2012E 2013E 2014E 2015E | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Chemistry Services | 43% | 41% | 40% | 39% | 39% | 39% | 38% | 37% | 36% | 35% |
| Biology Services | 26% | 28% | 29% | 29% | 30% | 31% | 33% | 33% | 34% | 36% |
| Screening Services | 10% | 9% | 8% | 8% | 7% | 6% | 6% | 5% | 5% | 5% |
| Lead Optimisation Services | 21% | 22% | 23% | 24% | 24% | 24% | 24% | 24% | 24% | 24% |
| Source: Kalorama Information; CBS Research AG; |
Trends that fuel the demand for drug discovery outsourcing
According to Kalorama, major trends that have led to an increase in demand for contract services in drug discovery include:
• development of new technologies that continued to increase the number of targets and accelerate the identification of active compounds;
- pressure to develop new lead compounds due to the patent cliff;
- increased pressure to reduce the time spent in drug discovery and to bring drugs to market sooner;
- increased focus on converting fixed costs to variable costs and streamlining operations by contracting for research and development services;
- heightened regulatory environment and increased complexity that made the internal management of complicated discovery projects more difficult and costly;
- biotechnology and emerging pharmaceutical companies, in many cases, lacking the required in-house drug discovery and development expertise.
Some thoughts on CRO industry consolidation
A relatively untapped market coupled with rapid revenue growth encouraged new players to enter the CRO industry. With this trend, the market became highly fragmented, with over 1,100 CROs worldwide. This led to a significant market consolidation, which has notably accelerated in the last time.
At the beginning of October PPD, a third-largest CRO by revenue with USD 1.4bn in 2010 sales behind only Covance and Quintiles, was acquired in a USD 3.9bn cash buyout by the Carlyle Group and Hellman & Friedman.
A number of other smaller private equity deals occurred in spring of this year. Omnicare CR (Clinical Research) was acquired from its parent company Omnicare Inc by private equity Nautic Partners in April 2011 and CCMP Capital bought a majority stake for USD 600m in CRO MedPace in May this year. Private equity traditionally had interest in CRO industry, e.g. in 2003 industry leader Quintiles was taken private.
However private equity is not the only driving force behind the industry consolidation. Small and medium sized CRO companies are also actively involved in M&A activity in order to expand their offer range or enhance the quality of drug discovery and development process, which is one of the necessary strategy components to maintain and reinforce their competitive position. Additionally, the consolidation trend is spurred by the CRO customer preferences. According to Frost and Sullivan research, the pharmaceutical companies demonstrate a preference for a single outsourcing company instead of multiple providers for a project. This helps eliminate dealings with numerous outsourcing companies and enables optimal leverage of the knowledge obtained during the early stages of R&D process within the same organization.
Appendix
Profit and loss account
| IFRS EUR 1,000 | 2008 | 2009 | 2010 | 2011E | 2012E | 2013E |
|---|---|---|---|---|---|---|
| Total revenues YoY grow th |
39,613 -27.2% |
42,683 7.7% |
55,262 29.5% |
78,965 42.9% |
83,609 5.9% |
92,201 10.3% |
| Cost of revenue | -21,977 | -24,262 | -30,916 | -42,387 | -42,640 | -45,179 |
| as % of sales | -55.5% | -56.8% | -55.9% | -53.7% | -51.0% | -49.0% |
| Gross profit | 17,636 | 18,421 | 24,346 | 36,578 | 40,968 | 47,023 |
| as % of sales | 44.5% | 43.2% | 44.1% | 46.3% | 49.0% | 51.0% |
| Research and development expenses | -42,537 | -20,947 | -6,116 | -10,400 | -10,500 | -11,000 |
| as % of sales | -107.4% | -49.1% | -11.1% | -13.2% | -12.6% | -11.9% |
| Selling, general and administrative (S,G&A) | -19,950 | -16,695 | -15,956 | -16,792 | -22,574 | -23,050 |
| as % of sales | -50.4% | -39.1% | -28.9% | -21.3% | -27.0% | -25.0% |
| Other operating expenses | -28,359 | -23,078 | -559 | -2,169 | -1,314 | -1,163 |
| as % of sales | -71.6% | -54.1% | -1.0% | -2.7% | -1.6% | -1.3% |
| EBITDA | -68,404 | -38,234 | 6,480 | 12,890 | 11,462 | 16,764 |
| as % of sales | -172.7% | -89.6% | 11.7% | 16.3% | 13.7% | 18.2% |
| Depreciation and amortisation | -4,806 | -4,065 | -4,765 | -5,673 | -4,882 | -4,954 |
| as % of sales | -12.1% | -9.5% | -8.6% | -7.2% | -5.8% | -5.4% |
| EBIT | -73,210 | -42,299 | 1,715 | 7,217 | 6,580 | 11,809 |
| as % of sales | -184.8% | -99.1% | 3.1% | 9.1% | 7.9% | 12.8% |
| Net financial results | -2,760 | -2,520 | 2,152 | 648 | 162 | 682 |
| EBT (Earnings before income taxes) | -75,970 | -44,819 | 3,867 | 7,866 | 6,742 | 12,491 |
| as % of sales | -191.8% | -105.0% | 7.0% | 10.0% | 8.1% | 13.5% |
| Income taxes | -2,317 | -678 | -882 | -1,809 | -1,551 | -2,873 |
| as % of EBT | 3.0% | 1.5% | -22.8% | -23.0% | -23.0% | -23.0% |
| Net income/loss | -78,287 | -45,497 | 2,985 | 6,056 | 5,191 | 9,618 |
| as % of sales | -197.6% | -106.6% | 5.4% | 7.7% | 6.2% | 10.4% |
| Basic earnings per share (EUR) | -0.82 | -0.43 | 0.03 | 0.05 | 0.04 | 0.08 |
Source: Evotec AG; CBS Research AG;
Research
Schillerstrasse 27 - 29 60313 Frankfurt am Main
Phone: +49 (0)69 – 977 8456-0
| Roger Peeters Member of the Board |
+49 (0)69 -977 8456- 12 [email protected] |
||
|---|---|---|---|
| Martin Decot | +49 (0)69 -977 8456- 13 [email protected] |
Kristina Kardum | +49 (0)69 -977 8456- 21 [email protected] |
| Igor Kim | +49 (0)69 -977 8456- 15 [email protected] |
Anna von Klopmann +49 (0)69 -977 8456- 10 [email protected] |
|
| Gennadij Kremer | +49 (0)69 – 977 8456- 23 [email protected] |
Ralf Marinoni | +49 (0)69 -977 8456- 17 [email protected] |
| Manuel Martin | +49 (0)69 -977 8456- 16 [email protected] |
Felix Parmantier | +49 (0)69 -977 8456- 22 [email protected] |
| Marcus Silbe | +49 (0)69 -977 8456- 14 [email protected] |
Veysel Taze | +49 (0)69 -977 8456- 18 [email protected] |
| Ivo Višić | +49 (0)69 -977 8456- 19 [email protected] |
Institutional Sales
Schillerstrasse 27 – 29 60313 Frankfurt am Main
Phone: +49 (0)69 – 9 20 54-400
Raimar Bock +49 (0)69 -9 20 54-115 Head of Sales [email protected]
Rüdiger Eich +49 (0)69 -9 20 54-119 Sule Erkan +49 (0)69 -9 20 54-107 (Germany, Switzerland) [email protected] (Sales-Support) [email protected]
Ulf Homeyer +49 (0)69 -9 20 54-111 Klaus Korzilius +49 (0)69 -9 20 54-114
Stefan Krewinkel +49 (0)69 -9 20 54-118 Markus Laifle +49 (0)69 -9 20 54-120 (Execution, UK) [email protected] (Execution) [email protected]
Bruno de Lencquesaing +49 (0)69 -9 20 54-116 Thomas Rosen +49 (0)69 -9 20 54-112 (Benelux, France) [email protected] (Germany, Switzerland) [email protected]
Christopher Seedorf +49 (0)69 -9 20 54-110 Janine Theobald +49 (0)69 -9 20 54-106 (Sales-Support) [email protected] (Austria, Germany) [email protected]
Bas-Jan Walhof +49 (0)69 -9 20 54-105 (Benelux) [email protected]
(Germany, Switzerland) [email protected] (Benelux, Germany) [email protected]
Disclaimer and statement according to § 34b German Securities Trading Act ("Wertpapierhandelsgesetz") in combination with the provisions on financial analysis ("Finanzanalyseverordnung" FinAnV)
This report has been prepared independently of the company analysed by Close Brothers Seydler Research AG and/ or its cooperation partners and the analyst(s) mentioned on the front page (hereafter all are jointly and/or individually called the "author"). None of Close Brothers Seydler Research AG, Close Brothers Seydler Bank AG or its cooperation partners, the Company or its shareholders has independently verified any of the information given in this document.
Section 34b of the German Securities Trading Act in combination with the FinAnV requires an enterprise preparing a security analysis to point out possible conflicts of interest with respect to the company that is the subject of the analysis.
Close Brothers Seydler Research AG is a majority owned subsidiary of Close Brothers Seydler Bank AG (hereafter ´CBS´). However, Close Brothers Seydler Research AG (hereafter ´CBSR´) provides its research work independent from CBS. CBS is offering a wide range of Services not only including investment banking services and liquidity providing services (designated sponsoring). CBS or CBSR may possess relations to the covered companies as follows (additional information and disclosures will be made available upon request):
- a. CBS holds more than 5% interest in the capital stock of the company that is subject of the analysis.
- b. CBS was a participant in the management of a (co)consortium in a selling agent function for the issuance of financial instruments, which themselves or their issuer is the subject of this financial analysis within the last twelve months.
- c. CBS has provided investment banking and/or consulting services during the last 12 months for the company analysed for which compensation has been or will be paid for.
- d. CBS acts as designated sponsor for the company's securities on the basis of an existing designated sponsorship contract. The services include the provision of bid and ask offers. Due to the designated sponsoring service agreement CBS may regularly possess shares of the company and receives a compensation and/ or provision for its services.
- e. The designated sponsor service agreement includes a contractually agreed provision for research services.
- f. CBSR and the analysed company have a contractual agreement about the preparation of research reports. CBSR receives a compensation in return.
- g. CBS has a significant financial interest in relation to the company that is subject of this analysis.
In this report, the following conflicts of interests are given at the time, when the report has been published: d,f
CBS and/or its employees or clients may take positions in, and may make purchases and/ or sales as principal or agent in the securities or related financial instruments discussed in this analysis. CBS may provide investment banking, consulting, and/ or other services to and/ or serve as directors of the companies referred to in this analysis. No part of the authors compensation was, is or will be directly or indirectly related to the recommendations or views expressed.
Recommendation System:
Close Brothers Seydler Research AG uses a 3-level absolute share rating system. The ratings pertain to a time horizon of up to 6 months:
BUY: The expected performance of the share price is above +10%. HOLD: The expected performance of the share price is between 0% and +10%. SELL: The expected performance of the share price is below 0%.
Recommendation history over the last 12 months for the company analysed in this report:
| Date | Recommendation | Price at change date | Price target |
|---|---|---|---|
| 11 November 2010 | BUY (Company Update) | EUR 2.49 | EUR 3.00 |
| 15 December 2010 | BUY (Company Update) | EUR 2.85 | EUR 3.20 |
| 17 January 2011 | BUY (Company Update) | EUR 3.33 | EUR 3.70 |
| 11 February 2011 | BUY (Company Update) | EUR 3.25 | EUR 3.70 |
| 10 March 2011 | BUY (Company Update) | EUR 3.00 | EUR 3.70 |
| Q Close Brothers Sey | |
|---|---|
| Research AG |
| 24 March 2011 | BUY (Company Update) | EUR 2.94 | EUR 3.70 |
|---|---|---|---|
| 13 May 2011 | BUY (Company Update) | EUR 3.00 | EUR 3.70 |
| 14 June 2011 | BUY (Company Update) | EUR 2.71 | EUR 3.60 |
| 11 August 2011 | BUY (Company Update) | EUR 1.74 | EUR 3.60 |
| 12 September 2011 | BUY (Company Update) | EUR 2.28 | EUR 3.60 |
| 27 October 2011 | BUY (Company Update) | EUR 2.38 | EUR 3.60 |
| 11 November 2011 | BUY (Company Update) | EUR 2.59 | EUR 3.60 |
Risk-scaling System:
Close Brothers Seydler Research AG uses a 3-level risk-scaling system. The ratings pertain to a time horizon of up to 6 months:
LOW: The volatility is expected to be lower than the volatility of the benchmark MEDIUM: The volatility is expected to be equal to the volatility of the benchmark HIGH: The volatility is expected to be higher than the volatility of the benchmark
The following valuation methods are used when valuing companies: Multiplier models (price/earnings, price/cash flow, price/book value, EV/Sales, EV/EBIT, EV/EBITA, EV/EBITDA), peer group comparisons, historical valuation approaches, discounting models (DCF, DDM), break-up value approaches or asset valuation approaches. The valuation models are dependent upon macroeconomic measures such as interest, currencies, raw materials and assumptions concerning the economy. In addition, market moods influence the valuation of companies. The figures taken from the income statement, the cash flow statement and the balance sheet upon which the evaluation of companies is based are estimates referring to given dates and therefore subject to risks. These may change at any time without prior notice.
The opinions and forecasts contained in this report are those of the author alone. Material sources of information for preparing this report are publications in domestic and foreign media such as information services (including but not limited to Reuters, VWD, Bloomberg, DPA-AFX), business press (including but not limited to Börsenzeitung, Handelsblatt, Frankfurter Allgemeine Zeitung, Financial Times), professional publications, published statistics, rating agencies as well as publications of the analysed issuers. Furthermore, discussions were held with the management for the purpose of preparing the analysis. Potentially parts of the analysis have been provided to the issuer prior to going to press; no significant changes were made afterwards, however. Any information in this report is based on data considered to be reliable, but no representations or guarantees are made by the author with regard to the accuracy or completeness of the data. The opinions and estimates contained herein constitute our best judgment at this date and time, and are subject to change without notice. Possible errors or incompleteness of the information do not constitute grounds for liability, neither with regard to indirect nor to direct or consequential damages. The views presented on the covered company accurately reflect the personal views of the author. All employees of the author's company who are involved with the preparation and/or the offering of financial analyzes are subject to internal compliance regulations.
The report is for information purposes, it is not intended to be and should not be construed as a recommendation, offer or solicitation to acquire, or dispose of, any of the securities mentioned in this report. Any reference to past performance should not be taken as indication of future performance. The author does not accept any liability whatsoever for any direct or consequential loss arising from any use of material contained in this report. The report is confidential and it is submitted to selected recipients only. The report is prepared for professional investors only and it is not intended for private investors. Consequently, it should not be distributed to any such persons. Also, the report may be communicated electronically before physical copies are available. It may not be reproduced (in whole or in part) to any other investment firm or any other individual person without the prior written approval from the author. The author is not registered in the United Kingdom nor with any U.S. regulatory body.
It has not been determined in advance whether and in what intervals this report will be updated. Unless otherwise stated current prices refer to the closing price of the previous trading day. Any reference to past performance should not be taken as indication of future performance. The author maintains the right to change his opinions without notice, i.e. the opinions given reflect the author"s judgment on the date of this report.
This analysis is intended to provide information to assist institutional investors in making their own investment decisions, not to provide investment advice to any specific investor.
By accepting this report the recipient accepts that the above restrictions are binding. German law shall be
applicable and court of jurisdiction for all disputes shall be Frankfurt am Main (Germany).
This report should be made available in the United States solely to investors that are (i) "major US institutional investors" (within the meaning of SEC Rule 15a-6 and applicable interpretations relating thereto) that are also "qualified institutional buyers" (QIBs) within the meaning of SEC Rule 144A promulgated by the United States Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "Securities Act") or (ii) investors that are not "US Persons" within the meaning of Regulation S under the Securities Act and applicable interpretations relating thereto. The offer or sale of certain securities in the United States may be made to QIBs in reliance on Rule 144A. Such securities may include those offered and sold outside the United States in transactions intended to be exempt from registration pursuant to Regulation S. This report does not constitute in any way an offer or a solicitation of interest in any securities to be offered or sold pursuant to Regulation S. Any such securities may not be offered or sold to US Persons at this time and may be resold to US Persons only if such securities are registered under the Securities Act of 1933, as amended, and applicable state securities laws, or pursuant to an exemption from registration.
This publication is for distribution in or from the United Kingdom only to persons who are authorised persons or exempted persons within the meaning of the Financial Services and Markets Act 2000 of the United Kingdom or any order made there under or to investment professionals as defined in Section 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 and is not intended to be distributed or passed on, directly or indirectly, to any other class of persons.
This publication is for distribution in Canada only to pension funds, mutual funds, banks, asset managers and insurance companies.
The distribution of this publication in other jurisdictions may be restricted by law, and persons into whose possession this publication comes should inform themselves about, and observe, any such restrictions. In particular this publication may not be sent into or distributed, directly or indirectly, in Japan or to any resident thereof.
Responsible Supervisory Authority: Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin, Federal Financial Supervisory Authority) Graurheindorferstraße 108 53117 Bonn and Lurgiallee 12 60439 Frankfurt
Schillerstrasse 27 - 29 60313 Frankfurt am Main www.cbseydlerresearch.ag Tel.: 0049 - (0)69 - 97 78 45 60