Evotec - Double Downgrade - Cut to SELL
Following a full review of EVT, we have significant concerns over EBITDA progression & expect another profit warning - we therefore double downgrade to SELL (€7 PT implies 20% downside). We see 5 key issues with the business with no obvious or quick S-T fixes. The new CEO may decide to rebase expectations and low visibility on the Biotech rebound & poor cost control will take many quarters to be rectified. We show that the incremental GM on €400m of sales growth 2018-23 was just 16%. When the Sandoz discovery deal ends, we have no visibility on CDMO sales, so could see revenues decline in 2027. Moreover, bond covenants could be breached in Q324.Evotec is a holding company engaged as a drug discovery solutions company providing drug discovery capabilities to pharmaceutical and biotechnology companies as well as to academic institutions. These drug discovery solutions are provided in form of fee-for service work, integrated drug discovery alliances, development partnerships, licensing of drug candidates and consulting arrangements. Co. is primarily involved in the areas of neuroscience, pain, metabolic diseases, oncology and inflammation. Co. provides its drug discovery activities under the banners of EVT Execute, EVT Integrate and EVT Innovate. Co.'s operations are divided into two segments: EVT Execute and EVT Innovate.
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