Comment on Eevia Health’s Q2-23 Report

On August 23rd, Eevia Health published the company’s quarterly report for Q2-23.

Continued Revenue Growth

During Q2-23, the net sales amounted to approx. EUR 1.9m (1.8), corresponding to an increase of 8% YoY, and 16% QoQ compared to Q1-23, where net sales amounted to EUR 1.7m. The net sales were in relatively in line with our expectations, where we estimated that Eevia would record sales from several orders in April amounting to EUR 2.1m. Looking forward, the Company guides for weaker results in the second half of 2023. Nonetheless, we see that Eevia has a solid order backlog in the short term and is well-positioned to perform well in the year of 2023 going forward. However, longer term revenue targets remain intact. Eevia delivers a strong quarter in terms of top-line results and although the H2-23 is expected to be weaker than H1-23, we see that Eevia is well-positioned to reach long-term goals as the company has managed to resolve temporary issues with production and achieved increased efficiency.

EBITDA Reaches New Record Levels

The EBITDA during Q2-23 amounted to EUR 0.6m (-69k in Q2-22), resulting in an EBITDA margin of 32%, which was significantly above our expectations. The YoY improvement in EBITDA was attributed to a stronger gross margin due to better production yields and improved productivity. Eevia has now achieved a positive EBITDA in the last twelve months, and we estimate that the company will reach a positive EBITDA for the full year of 2023. However, we forecast the EBITDA margin to reach high single-digits for the full year rather than double-digits. Eevia also managed to show a positive net income of EUR 0.4m during Q2-23, resulting in a net margin of 21%. The positive net result was mainly attributable to the increased revenue and improved EBITDA due to higher gross margins as well as reductions in personnel which was enabled by productivity increases in production.

Strong Cash Flow and External Funding Strengthens Financial Position

At the end of Q2-23, Eevia’s cash balance was EUR 0.3m, compared to EUR 81k at the end of Q1-23, resulting in a net cash of EUR 0.24m. The increase in cash was mainly attributable to stronger operating cash flow which amounted to EUR 0.3m. Furthermore, after the end Q2-23, Eevia Health managed to secure additional funding of approximately EUR 1m (or SEK 11.5m) before fees through a directed share issue in August. Going forward, assuming a burn rate of EUR -0.1m per month, which we believe is conservative to assume and is also in line with the LTM burn rate per month, and cash balance of EUR 0.3m as well as proceeds from the directed share issue of EUR 1m, Eevia is estimated to be financed until the end of Q2-24. However, CEO Stein Ulve expects that the company will be able to tap into more conventional funding now when the Eevia has strengthened its capitalization which will enable the company, along with improved operating results, to be financed longer than estimated. Therefore, we believe that Eevia is sufficiently capitalized and that the worst uncertainty regarding the financial position is behind the company.

In conclusion, we see that Eevia continues to progress well operatively. Although the second half of 2023 is expected to be weaker, Eevia has shown that the company can deliver black numbers with high margins despite a tough macro-environment. With a streamlined production, a strengthened balance sheet, and opportunities to attract credit financing, we believe that Eevia is in a position to accelerate the path towards the company’s long-term revenue targets and to become a market-leader in the nutraceutical and plant extract markets. Based on our forecast for year 2024, which is the year where we estimate that Eevia will show a positive operating result (EBIT) on a full-year basis, Eevia is trading at P/S 0.4x and EV/EBIT 5x where we believe the present valuation provides an attractive upside as well as risk/reward from current levels. Given a Market Cap of SEK 139m in a Base scenario, corresponding to an implied value per share of SEK 3.9 (4.5), which is a technical adjustment due to new shares from the directed share issue, this yields a 36% upside from the last closing price, per our last equity research report.

We will return with an updated analysis of Eevia Health.