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Published to the market and investors on 14^th May 2019 @ 10.30am (BST).

Evotec SE (EVT-DE): Q1 results beat on strong top-line growth
Recommendation: OUTPERFORM
Target Price: EUR28.00
Current Price: EUR21.37 (CoB on 13^th May 2019)

KEY TAKEAWAY

Evotec reported strong Q1/2019 financial results that beat our and consensus forecasts at the top and bottom line. Revenues came in at EUR103.8m, +31% YoY, well ahead of our and cons. estimates of EUR90m and EUR94m, respectively, driven by solid performance across both business segments (Execute and Innovate). The gross margin of 30% was also ahead of our expectations. Total operating costs of EUR13m (in line with GPSLe) yielded an adjusted EBITDA result of EUR30m (vs. GPSLe EUR20m and cons. EUR22m), more than double the result of the previous year (EUR14m). Despite the strong start to the year, management maintained FY2019 financial outlook, as it has done in previous years. We are confident that the company is on track to meet or exceed our FY2019 estimates, which are broadly in line with outlook, driven by rising demand for Evotec's high-quality services from pharma and increasingly biotech companies as well as the co-owned pipeline. We maintain and reiterate both our OUTPERFORM recommendation and EUR28 target price.

EVT Execute driven by strong performance in base business and milestones

Evotec's services business EVT Execute posted external revenues of EUR82m, +19% YoY, above our EUR78m forecast, driven by continued strong performance across the business plus high milestone income. This drove a gross margin of 29% (vs. GPSLe 26%) and 88% adjusted EBITDA growth to EUR32m, representing a 32% margin.

EVT Innovate impresses with strong top-line performance

Revenues for the EVT Innovate business came in at EUR19m, +81% compared to a low base in Q1/2018 and well above our estimate of EUR12m and cons. EUR15m. A step-up in operating expenses led to the business reporting a negative adjusted EBITDA result of EUR2.3m, as expected (we had forecasted a loss of EUR4.5m). Nevertheless, we expect the FY2019 result to be positive.

Guidance unchanged, in line with previous Q1 results

Management reiterated FY2019 financial outlook of c.10% revenue and adjusted EBITDA growth, which includes unpartnered R&D expenses of EUR30m - EUR40m. While this may seem conservative, since Q1 revenues and adjusted EBITDA already reflect more than one-quarter of the projected full-year figures, we note that management has left financial guidance unchanged at Q1 results in the past three years. Revenues can be volatile, particularly milestone income, and it is therefore prudent for management to make any revisions later in the year. For FY2019, we forecast revenues of EUR405m and adjusted EBITDA of EUR101m, which are likely to remain unchanged until H1/2019 results.

Kind regards,

Brigitte de Lima, PhD, CFA | Research Analyst

goetzpartners Healthcare Research Team | Research Team

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