Evotec reported strong Q3/2019 results that beat our and consensus' estimates. All business segments delivered a solid performance, including the recently acquired biologics business. We expect the positive trend to continue into 2020E and have therefore lifted 2019E - 2023E revenues by 1% - 2% and adj. EBITDA by up to 6%. Our FY2019E forecasts are 3% - 5% above revised company outlook and we think that the risk to our estimates is to the upside. Evotec shares are trading significantly below our valuation; hence, we believe that the current price provides an attractive entry point for investors seeking exposure to a long-term structural growth story. We reiterate both our OUTPERFORM recommendation and €28 target price ("TP").
Evotec reported Q3/2019 revenues of €114m, +15% YoY and above our and cons. estimates of €107m and €108m, respectively. A decrease in licensing revenue (€3.2m vs. €11.7m in Q3/2018) was more than offset by a 27% increase in base business revenues (to €111m), which included €10.4m from Just - Evotec biologics. Adj. EBITDA rose 16% YoY to €35m, 49% above GPSLe. The results led management to lift FY2019E outlook for adj. EBITDA growth to c.15% from c.10%. We now forecast FY2019E revenues of €431m (+18% vs. €364m in FY2018 excl. recharges, above +15% outlook) and adj. EBITDA of €111m (+21% vs. €92m in FY2018 excl. one-off effects).
Based on management commentary, the positive momentum is expected to continue into 2020E, driven by strong order books, high capacity utilisation, a steadily advancing pipeline of co-owned assets and solid long-term partnerships - all of which are underpinned by Evotec's high level of innovation and focus on early precision medicine.
At the heart of precision medicine is the customisation of therapy to each specific patient based on a combination of genetic, cell biological, clinical and outcomes data. A key driver has been the increasing availability of large data sets, which can be fed into the early-stage drug discovery process to increase success rates, lower development timelines and cut costs. Evotec has recently entered partnerships with four companies focused on accessing large patient databases: Indivumed (colorectal cancer), Celmatix (women's health), Vifor (nephrology) and Sensyne Health (real-world evidence).
Evotec noted that the collaboration with Celgene in neurodegeneration had been extended by two years to 2023, triggering a milestone payment of €30m. The collaboration was originally started in 2016 to discover novel therapies targeting degenerative diseases by leveraging Evotec's induced pluripotent stem cell (“iPSC”) platform. The extension of this deal is particularly encouraging in light of the ongoing acquisition of Celgene by BMS, suggesting that it is on the priority list.