Nuevolution — Clinical development in 2019

Nuevolution — Clinical development in 2019

Nuevolution’s drug discovery platform (Chemetics) continues to receive external validation, with Amgen opting in for another oncology programme from its multi-target collaboration. Transitioning assets to the clinic will be a defining moment for Nuevolution, and the RORγt inhibitor programme (out-licensed to Almirall in psoriatic arthritis and skin conditions) remains on course to potentially enter the clinic in 2019. Nuevolution’s internal programmes continue to progress well and new early-stage programmes addressing important inflammation and oncology targets have now been announced (TYK2 and RIPK1). We value Nuevolution at SEK19.7/share.

Analyst avatar placeholder

Written by

Nuevolution

Clinical development in 2019

Q3 results

Pharma & biotech

10 December 2018

Price

SEK15.96

Market cap

SEK790m

SEK9.03/US$; US$1.14/€; SEK10.25/€

Net cash (SEKm) at 30 September

127.3

Shares in issue

49.5m

Free float

55%

Code

NUEV

Primary exchange

Nasdaq Stockholm

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.9

(0.8)

(8.3)

Rel (local)

10.3

10.5

(1.9)

52-week high/low

SEK20.1

SEK14.06

Business description

Nuevolution is a Copenhagen-based biopharmaceutical company. Its patent-protected Chemetics drug discovery platform enables the selection of drugs to an array of tough-to-drug disease targets. To date it has entered into 17 agreements with major pharmaceutical companies.

Next events

Sign new out-licence/risk-sharing collaboration

2019

Start of Almirall’s RORγt Phase I trial

2019

Analysts

Dr Daniel Wilkinson

+44 (0)20 3077 5734

Dr Susie Jana

+44 (0)20 3077 5700

Dr Sean Conroy

+44 (0) 20 3681 2534

Nuevolution is a research client of Edison Investment Research Limited

Nuevolution’s drug discovery platform (Chemetics) continues to receive external validation, with Amgen opting in for another oncology programme from its multi-target collaboration. Transitioning assets to the clinic will be a defining moment for Nuevolution, and the RORγt inhibitor programme (out-licensed to Almirall in psoriatic arthritis and skin conditions) remains on course to potentially enter the clinic in 2019. Nuevolution’s internal programmes continue to progress well and new early-stage programmes addressing important inflammation and oncology targets have now been announced (TYK2 and RIPK1). We value Nuevolution at SEK19.7/share.

Year end

Revenue (SEKm)

PBT*
(SEKm)

EPS*
(SEK)

DPS
(SEK)

P/E
(x)

Yield
(%)

06/16

21.3

(151.9)

(4.0)

0.0

N/A

N/A

06/17

120.3

(9.4)

(0.6)

0.0

N/A

N/A

12/18e**

11.5

(109.0)

(2.1)

0.0

N/A

N/A

12/19e**

196.4

75.3

1.0

0.0

16.0

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Year-end has changed to 31 December.

Second opt-in from Amgen collaboration

With the second opt-in in six months, Nuevolution is further demonstrating that it has the in-house ability to execute and deliver on its partnerships. For the two opted-in programmes, all the remaining development costs will be covered by Amgen. If Amgen exercises its option to license a candidate, Nuevolution will receive an initial licensing fee of at least $10m and potential additional milestone payments of up to $400m per candidate. With the collaboration spanning across more undisclosed targets in oncology and neuroscience, significant financial potential exists for Nuevolution.

Positioning the pipeline for an out-licence

Nuevolution continues to build and strengthen its pipeline of preclinical assets and aims to monetise some of those in the near term via out-licensing. It originally guided to a new deal by year-end, but has now suspended this guidance as a result of potential partners taking advantage of it to negotiate more favourable deal terms. We now have no visibility on the timelines for potential new deals for Nuevolution, but believe the BET-BD1 programme, which is nearing candidate nomination (early 2019), is well positioned and most likely to be out-licensed or partnered.

Financials: Funded through key inflection points

For 9M18, revenue remained steady at SEK9.8m (9M17: SEK9.0m), while SG&A rose to SEK22.6m (9M17: SEK17.4m) and R&D costs fell to SEK70.0m (9M17: SEK80.7m), resulting in a net loss of SEK76.1m (9M17: SEK84.9m). As of Q318, gross cash (and equivalents) were SEK130.7m, which should provide runway until H219 assuming there is no further revenue from current or potential future partners.

Valuation: SEK19.7/share (SEK974m)

We value Nuevolution at SEK19.7/share (SEK974m) vs SEK22.8/share (SEK1,127m) previously. The decrease in value is driven by the adjustment of timelines for an expected Amgen out-licence and updating FX rates. We also now include end-September net cash.

Chemetics continues to strengthen pipeline

Nuevolution’s business model embodies continuous revenue generation and risk mitigation, executed through a ‘multiple shots on goal’ approach to drug development. Underpinning this is the internally developed DNA-encoded drug discovery platform, Chemetics, which comprises compound libraries (of up to 40 trillion molecules) that have been designed to rapidly select drugs for an array of ‘tough-to-drug’ targets. The company has a number of late-stage preclinical assets, alongside more than 10 earlier-stage programmes (varying from hit identification to hit optimisation). In the Q3 results, Nuevolution disclosed that it has identified and is developing small molecule inhibitors for TYK2 and RIPK1, which are ‘hot targets’ in drug discovery. While in the near term we believe that later-stage assets (eg RoRγt and BET-BD1) will continue to be core candidates for out-licensing, we believe these two new programmes will present strong out-licensing/ partnering opportunities as they progress towards candidate nomination. For more detail on the complete pipeline, please refer to our previous note, Pipeline and partnerships continue to strengthen.

TYK2: Not just another kinase

Tyrosine kinase 2 (TYK2) is a member of the Janus kinase (JAK) family, which sits downstream of cytokine receptors and mediates inflammatory signalling. Inhibition of the JAK family is a proven strategy for the treatment of inflammatory disorders, notably as evidenced by Pfizer’s JAK inhibitor Xeljanz (tofacitinib), which generated global sales of $1.2bn in 9M18 across rheumatoid arthritis, psoriatic arthritis and ulcerative colitis. To date, there are no marketed TYK2 inhibitors, but there have been some noteworthy clinical-stage compounds under investigation as oral-based treatments for patients with moderate to severe plaque psoriasis (PsO). The most advanced compound in the clinic is a selective oral TYK2 inhibitor from Bristol-Myers Squibb (BMS-986165), which recently embarked on two pivotal Phase III trials (POETYK-PSO-1 and POETYK-PSO-2) following strong Phase II data reported in September 2018. BMS-986165 was shown to achieve PASI 75 (75% reduction in the psoriasis area and severity index) in 67–75% of patients in the 3mg, twice daily and higher dose groups, compared to 7% for placebo at week 12. Efficacy was observed regardless of previous treatment with a biologic.

With several other programmes in Nuevolution’s pipeline also being developed for PsO (RORγt, IL-17A and BET-BD1), it will likely be able to drawn on its growing preclinical experience in this indication to identify a clinical candidate quickly. We anticipate that Nuevolution’s TYK2 programme will generate significant external interest as it advances and, while an out-licence in 2019 is unlikely, potential deals in 2020 could materialise if attractive deal terms are presented to Nuevolution by possible partners.

RIPK1: Playing a pivotal role in neuroinflammation

Receptor-interacting serine/threonine-protein kinase 1 (RIPK1) is a signalling kinase in the tumour necrosis factor receptor (TNF) pathway, and acts to regulate inflammation and cell death in tissues throughout the body. It plays a role in a range of inflammatory diseases and is of particular interest in the neuroinflammatory processes thought to drive some neurodegenerative disorders. Notably, RIPK1 has recently been implicated in the progression of Alzheimer’s disease (AD), where it is believed that RIPK1 mediated signalling causes the accumulation of amyloid plaques.

RIPK1 is an attractive target in drug discovery and Nuevolution is likely to gain external interest as its discovery programme progresses. Denali Therapeutics announced in November 2018 that it had partnered with Sanofi on its RIPK1 inhibitors (DNL747 and DNL758), with an upfront fee of $125m and milestones (development and commercial) that could exceed $1bn. Importantly, Phase I data indicated that DNL747 was safe and well-tolerated in healthy subjects, and has now progressed into two Phase Ib safety and pharmacokinetic studies in patients with Alzheimer’s disease (AD) and amyotrophic lateral sclerosis (ALS). As part of the deal, Sanofi will cover the remaining costs of all Phase Ib and II trials, with Denali covering 30% of any Phase III trial costs.

Amgen and Almirall: 2019 a year of inflection points

In July 2018, Amgen exercised its right to opt in on the first of at least three undisclosed programmes (multi-target collaboration across oncology and neuroscience), and has assumed responsibility for all further costs incurred by both parties. In November 2018, Amgen exercised its right to option a second programme. Nuevolution currently retains the ownership of both these programmes. The multi-target collaboration is structured as follows for each programme:

Early-stage discovery: Nuevolution covers all costs.

Proof of concept: Amgen confirms activity in animal models.

Contractual opt-in: Amgen covers all costs including those of Nuevolution, with shared development of the programme.

Amgen in-licenses the programme.

Should Amgen exercise its option to license a candidate from either programme before the end of Phase I, Nuevolution will receive, per programme, an initial licensing fee of at least $10m, clinical and commercial milestone payments (of up to $400m in total depending on project success), and subsequent royalties on sales if commercialised.

The targets have not been disclosed for either of the opted-in programmes and Nuevolution does not expect either programme to produce clinically ready compounds until at least late 2020. We currently forecast that Amgen will in-license both opt-in programmes before they enter Phase I development (the first in 2019 and the second in 2020). However, a later opt-in for either would increase the size of any potential licensing payment, as per the agreement in place. Additionally, Nuevolution has a third programme in early-stage development.

In our view, the Almirall RORγt inhibitor programme is likely to enter the clinic in 2019 (forecast c SEK70m payment on the start of Phase I clinical trial) and will trigger the start of payments to Nuevolution, which could increase to €172m in development and regulatory milestones (€270m in tiered commercial sales milestones will also be available if the product is commercialised). The timing and design of any clinical trial is ultimately Almirall’s decision and we await further information on these elements.

We note that milestone payments from Almirall and Amgen remain a key sensitivity in our valuation for Nuevolution, and any difference from our forecasts in the size or timing of payments would materially affect our valuation.

Financials

Revenue for the first nine months of FY18 remained steady at SEK9.8m (9M17: SEK9.0m), driven primarily by the ongoing partnerships with Janssen and Amgen. With Amgen now opted in for two assets in its collaboration with Nuevolution, we anticipate an ongoing revenue stream for reimbursement of Nuevolution’s incurred R&D costs.

We now forecast significantly reduced FY18 revenue of SEK11.5m compared to SEK112.6m previously, due to pushing back our forecasts for Amgen to in-license an asset in 2019 compared with 2018 previously. We note that there is significant sensitivity around our forecast revenue streams as we have limited visibility on the progress of the Amgen, Almirall and Janssen partnerships. We currently assume that Almirall will enter the clinic in 2019 with its licensed RORγt inverse agonist and forecast that this will trigger a substantial milestone (c SEK70m) for Nuevolution. Additionally, we forecast that Amgen will in-license an asset in 2019 to the approximate value of SEK100m and that the Janssen partnership will contribute c SEK16m to Nuevolution’s revenue stream.

SG&A rose to SEK22.6m (9M17: SEK17.4m), primarily as a result of up-listing to the Nasdaq Stockholm main market in June. We forecast an increase in FY18 SG&A costs to SEK29.0m (vs SEK25.3m previously) and a reduction beyond 2018. R&D costs fell to SEK70.0m (9M17: SEK80.7m) as expensive toxicology studies for the BET-BD1 and RORγt near completion. We have decreased our FY18e R&D costs to SEK90.4m (vs SEK109.7m previously).

Net loss reduced to SEK76.1m (9M17: SEK84.9m). We now forecast an FY18 net loss of SEK102.4m (vs SEK13.6m previously). As of 30 September 2018, gross cash and cash equivalents were SEK130.7m (30 September 2017: SEK146.4m), which should provide runway until H219, assuming no further milestone revenue from Almirall, Amgen and Janssen in addition to any potential upfront from new potential partners.

Although Nuevolution has changed its financial year end to 31 December (from 30 June), we retain a 30 June year-end in our model for historic numbers, but have altered our forecasts to take into account the new year-end. Once Nuevolution has reported a full year under the new format, we will update our historic financials.

Valuation: SEK19.7/share (SEK974m)

We value Nuevolution at SEK19.7/share (SEK974m) vs SEK22.8/share (SEK1,127m) previously. Our reduced valuation is predominately driven by pushing back potential Amgen in-licenses. We now forecast that three Nuevolution/Amgen programmes are in-licensed by Amgen in 2019, 2020 and 2021, and assume that Nuevolution incurs no further R&D costs for the two opted-in Amgen programmes (according to the terms of the partnership agreement). We note that the progress in the Amgen partnership remains positive, although limited visibility remains on any potential in-license(s) timelines by Amgen. We now believe our new forecast in-license dates for Amgen are more in line with the development of the three assets to date. However, we note Amgen could in-license these programs earlier or not at all, adding respectively potential upside or downside to our valuation.

However, we note that Nuevolution will incur direct R&D costs for these programmes and will be reimbursed separately by Amgen. Our R&D forecasts therefore still include this forecast spend. We assume no other changes in development timelines and all other assumptions remain the same. For details of our valuation methodology for Amgen, please see our outlook report, Pipeline and strategic execution drives prospects, published on 15 March 2018. We have rolled forward our model, and updated for end-September cash (SEK127.3m) and FX rates. Please note that we have corrected for an $:€ exchange rate error in our previously published note, which in particular negatively affected the contribution Almirall makes to our valuation. Our underlying assumptions remain unchanged.

Our valuation of SEK974m, including net cash of SEK127.3m, is based exclusively on a risk-adjusted model of the future milestones we expect from the Almirall (SEK9.1 per share), Amgen (SEK7.5 per share) and Janssen (SEK0.4 per share) deals (ie excluding any value from the technology itself, other pipeline assets and excluding future deal opportunities), using a 12.5% discount rate. We have not ascribed value at this point to the unique platform and multiple candidates at early stages of preclinical development. We note that the ability to attract and secure deals for these assets will be key to the evolution into a profitable operation and that any new deals would add upside to our current valuation.

Exhibit 1: Sum-of-the-parts NPV

Product

Partner

Indication

Phase

NPV of milestone payments (SEKm)

rNPV of milestone payments (SEKm)

NPV of
royalties on
sales (SEKm)

rNPV of
royalties on
sales (SEKm)

Total rNPV (SEKm)

Total rNPV/
share (SEK)

RORγt inhibitor

Almirall

Psoriasis & PsA

Preclinical

1251.7

284.0

1672.1

167.2

451.2

9.1

Various

Amgen

Oncology & neuroscience

Drug discovery

742.3

373.7

0.0

0.0

373.7

7.5

Janssen

Anti-infective

Drug discovery

49.2

21.9

0.0

0.0

21.9

0.4

Net cash (at 30 September 2018)

127.3

2.6

Valuation

974.1

19.7

Source: Edison Investment Research

Exhibit 2: Financial summary

Accounts: IFRS, Year-end: June, SEK000s

 

 

2016

2017

2018e

2019e

INCOME STATEMENT

 

 

 

 

 

 

Total revenues

 

 

21,314

120,318

11,477

196,393

Reported gross profit

 

 

21,314

120,318

11,477

196,393

SG&A (expenses)

 

 

(57,493)

(23,216)

(29,020)

(26,989)

R&D costs

 

 

(115,707)

(107,587)

(90,373)

(94,892)

Adjusted EBIT

 

 

(151,886)

(10,485)

(107,916)

74,513

Reported EBIT

 

 

(151,886)

(10,485)

(107,916)

74,513

Finance income/(expense)

 

 

(22)

1,045

(1,056)

782

Adjusted PBT

 

 

(151,908)

(9,440)

(108,971)

75,294

Reported PBT

 

 

(151,908)

(9,440)

(108,971)

75,294

Income tax expense

 

 

6,911

(16,046)

6,538

(26,353)

Adjusted net income

 

 

(144,997)

(25,486)

(102,433)

48,941

Reported net income

 

 

(144,997)

(25,486)

(102,433)

48,941

Earnings per share

 

 

 

 

 

 

Basic EPS (SEK)

 

 

(4.0)

(0.6)

(2.1)

1.0

Diluted EPS (SEK)

 

 

(4.0)

(0.6)

(2.2)

1.0

Adjusted basic EPS (SEK)

 

 

(4.0)

(0.6)

(2.1)

1.0

Adjusted diluted EPS (SEK)

 

 

(4.0)

(0.6)

(2.2)

1.0

Average number of shares - basic (m)

 

 

36.5

42.9

45.9

49.5

Average number of shares - diluted (m)

 

 

36.5

43.3

46.8

46.8

Number of shares outstanding -end period (m)

 

 

42.9

42.9

49.5

49.5

BALANCE SHEET

 

 

 

 

 

 

Property, plant and equipment

 

 

5,494

5,538

5,761

5,973

Other non-current assets

 

 

8,585

6,397

13,527

1,665

Total non-current assets

 

 

14,079

11,935

19,288

7,638

Cash and equivalents

 

 

205,955

179,595

100,288

166,418

Trade and other receivables

 

 

367

93

93

93

Other current assets

14,564

10,032

9,730

3,192

Total current assets

 

 

220,886

189,720

110,111

169,703

Non-current loans and borrowings

 

 

3,482

2,939

2,939

2,939

Total non-current liabilities

 

 

3,482

2,939

2,939

2,939

Trade and other payables

 

 

12,162

10,986

6,592

6,592

Current loans and borrowings

 

 

1,222

1,482

1,482

1,482

Other current liabilities

 

 

20,044

16,286

11,403

10,403

Total current liabilities

 

 

33,428

28,754

19,477

18,477

Equity attributable to company

 

 

198,055

169,962

106,984

155,925

CASH FLOW STATEMENT

 

 

 

 

 

 

Profit before tax

 

 

(151,908)

(9,440)

(108,971)

75,294

Depreciation of tangible assets

 

 

1,328

1,703

277

288

Share based payments

 

 

48,528

(153)

0

0

Other adjustments

 

 

22

(1,045)

1,056

(782)

Movements in working capital

 

 

19,594

(962)

(8,568)

0

Net cash from operating activities (pre-tax)

 

 

(82,436)

(9,897)

(116,207)

74,801

Interest paid/received

 

 

(224)

(798)

(1,056)

782

Income taxes paid

 

 

1,210

(12,520)

0

(7,953)

Cash from operations (CFO)

 

 

(81,450)

(23,215)

(117,262)

67,630

Capex (includes acquisitions)

 

 

(504)

(715)

(500)

(500)

Other investing activities

 

 

(51)

(9)

0

0

Cash used in investing activities (CFIA)

 

 

(555)

(724)

(500)

(500)

Net proceeds from issue of shares

 

 

242,061

0

104,292

0

Other financing activities

 

 

(1,119)

(1,253)

(1,000)

(1,000)

Cash from financing activities (CFF)

 

 

240,942

(1,253)

103,292

(1,000)

Increase/(decrease) in cash and equivalents

 

 

158,937

(25,192)

(14,470)

66,130

Cash and equivalents at beginning of period

 

 

46,250

205,955

114,758

100,288

Cash and equivalents at end of period

 

 

205,955

179,595

100,288

166,418

Source: Company accounts, Edison Investment Research. Note: historical financials have a 30 June year-end. Forecasts have a 31 December year -end.

General disclaimer and copyright

This report has been commissioned by Nuevolution and prepared and issued by Edison, in consideration of a fee payable by Nuevolution. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2018 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney+61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney+61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Nuevolution and prepared and issued by Edison, in consideration of a fee payable by Nuevolution. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2018 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney+61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney+61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Cake Box Holdings — Plain vanilla

What is rare about Cake Box’s investment case is that it is a unique concept which is also low-tech. The simplicity of the retail offer and of the franchise formula, management’s track record, the ungeared balance sheet, as well as continuing current like-for-like growth despite depressed consumer sentiment and macro uncertainty, all argue for lower execution risk in the straight-line growth proposition.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free