Currency in GBP
Last close As at 26/05/2023
GBP7.24
▲ 20.00 (2.84%)
Market capitalisation
GBP436m
Research: Consumer
Treatt’s H123 results demonstrate that the business is back to greater stability and resilience. The growth was particularly impressive in Citrus, Coffee and China, and management is quietly confident about the rest of the year. We continue to believe that risk lies to the upside in terms of market expectations. Growth in H1 was driven by price increases, which offset inflationary pressures and supported margins. Cost control and efficiency measures are ongoing, and cash flow was strong, as highlighted in the recent trading update, with improved net debt despite the traditional build of working capital at H1.
Treatt |
A strong start to the year |
H123 results |
Food and beverages |
10 May 2023 |
Share price performance
Business description
Next events
Analysts
Treatt is a research client of Edison Investment Research Limited |
Treatt’s H123 results demonstrate that the business is back to greater stability and resilience. The growth was particularly impressive in Citrus, Coffee and China, and management is quietly confident about the rest of the year. We continue to believe that risk lies to the upside in terms of market expectations. Growth in H1 was driven by price increases, which offset inflationary pressures and supported margins. Cost control and efficiency measures are ongoing, and cash flow was strong, as highlighted in the recent trading update, with improved net debt despite the traditional build of working capital at H1.
Year |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
09/21 |
124.3 |
22.7 |
30.1 |
7.5 |
21.6 |
1.2 |
09/22 |
140.2 |
16.5 |
21.9 |
7.9 |
29.7 |
1.2 |
09/23e |
154.2 |
18.0 |
23.6 |
8.5 |
27.5 |
1.3 |
09/24e |
163.5 |
20.4 |
26.4 |
9.6 |
24.6 |
1.5 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Strong sales growth and cash management
H123 sales of £76.0m were 14.6% ahead of the prior year, or +8.5% at constant currency. Gross margin was up 70bps on H122 though, as highlighted at the trading update, higher administrative expenses (increased depreciation and inflationary pressures) led to operating margins 20bps ahead of the comparative period, and adjusted EPS was up 10% to 9.04p. Dividend per share was 2.55p, up 2% as management moves towards a longer-term target of three times dividend cover. Net debt was £17.7m, an improvement versus £22.4m at end FY22.
Value-added products drive growth
Management remains focused on its higher margin, value-added categories and sees particular opportunities in the Coffee segment and in its business in China. The Chinese beverage market is disproportionately citrus-focused, which naturally plays to Treatt’s strengths. Coffee remains an exciting new category for Treatt, with the business well-positioned to capitalise on current consumer interest in the coldbrew category in the US and the UK.
Valuation: Forecasts unchanged
The current share price is discounting medium-term sales growth of 4.8%, falling to 2.0% in perpetuity, with a WACC of 7.7% and a terminal EBIT margin of 21.5% (vs 11.3% in FY22). Our forecasts remain unchanged. We note that H2 is the bigger half year for Treatt as it is a more summer-weighted business, owing to its exposure to beverages in the northern hemisphere. Treatt trades at 28.2x FY23e P/E and 17.4x FY23e EV/EBITDA. On both P/E and EV/EBITDA multiples, it trades at a c 5-10% premium to its peer group. On both metrics it trades at a c 5-10% discount to peers if we exclude those that are more exposed to lower-margin commoditised products.
Valuation
We illustrate Treatt’s relative valuation versus its ingredients peer group in Exhibit 1 below. Treatt trades at a c 5-10% premium to its peer group on both a P/E basis and an EV/EBITDA basis, though we note Kerry and Ingredion have a larger proportion of lower-margin products in their portfolios. If we exclude Kerry and Ingredion, Treatt is trading at a c 5-10% discount to the remaining peers on both P/E and EV/EBITDA multiples. Although it is smaller than its peers, its portfolio of products is increasingly specialised.
Exhibit 1: Comparative valuation
Market cap |
P/E (x) |
EV/EBITDA (x) |
Dividend yield (%) |
|||||
2023e |
2024e |
2023e |
2024e |
2023e |
2024e |
|||
Givaudan |
CHF 29,101 |
31.6 |
28.1 |
22.0 |
20.2 |
2.2 |
2.3 |
|
IFF |
$24,777 |
20.0 |
17.1 |
15.1 |
13.5 |
3.1 |
3.2 |
|
Symrise |
CHF 15,344 |
32.9 |
28.6 |
17.9 |
16.3 |
1.1 |
1.1 |
|
Chr Hansen |
DKK 68,699 |
36.4 |
32.4 |
21.7 |
19.8 |
1.8 |
2.0 |
|
Kerry |
€17,037 |
21.6 |
19.3 |
15.8 |
14.4 |
1.2 |
1.3 |
|
Ingredion |
$7,151 |
11.9 |
11.3 |
8.0 |
7.7 |
2.7 |
2.8 |
|
Peer group average |
25.7 |
22.8 |
16.7 |
15.3 |
2.0 |
2.1 |
||
Treatt |
£400 |
28.2 |
25.2 |
17.4 |
16.3 |
1.3 |
1.4 |
|
Premium/(discount) to peer group (%) |
9.5% |
10.4% |
4.0% |
6.4% |
(35.7%) |
(32.6%) |
Source: Refinitiv, Edison Investment Research. Note: Prices as of 8 May 2023.
Exhibit 2: Financial summary
£000's |
2020 |
2021 |
2022 |
2023e |
2024e |
2025e |
||
Year end September |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
109,016 |
124,326 |
140,185 |
154,204 |
163,456 |
171,628 |
Cost of Sales |
(77,140) |
(82,103) |
(101,101) |
(110,286) |
(115,759) |
(120,345) |
||
Gross Profit |
31,876 |
42,223 |
39,084 |
43,918 |
47,697 |
51,283 |
||
EBITDA |
|
|
17,862 |
24,877 |
19,503 |
24,255 |
25,917 |
27,553 |
Operating profit (before amort. and excepts.) |
|
|
16,053 |
23,172 |
17,027 |
19,010 |
20,830 |
22,221 |
Intangible Amortisation |
(75) |
(93) |
(215) |
(183) |
(155) |
(132) |
||
Share based payments |
(886) |
(1,733) |
(1,039) |
(1,014) |
(1,140) |
(1,233) |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
15,092 |
21,346 |
15,773 |
17,813 |
19,536 |
20,856 |
||
Net Interest |
(291) |
(427) |
(517) |
(1,038) |
(446) |
(199) |
||
Exceptionals |
(1,060) |
(1,302) |
923 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
15,762 |
22,745 |
16,510 |
17,972 |
20,384 |
22,022 |
Profit Before Tax (FRS 3) |
|
|
13,741 |
19,617 |
16,179 |
16,775 |
19,089 |
20,657 |
Profit Before Tax (company) |
|
|
14,801 |
20,919 |
15,256 |
16,775 |
19,089 |
20,657 |
Tax |
(2,896) |
(4,469) |
(2,864) |
(3,774) |
(4,486) |
(4,854) |
||
Profit After Tax (norm) |
12,762 |
18,090 |
13,215 |
14,198 |
15,898 |
17,168 |
||
Profit After Tax (FRS 3) |
10,845 |
15,148 |
13,315 |
13,001 |
14,603 |
15,802 |
||
Discontinued operations |
0 |
0 |
0 |
0 |
0 |
0 |
||
Average Number of Shares Outstanding (m) |
59.8 |
60.1 |
60.3 |
60.3 |
60.3 |
60.3 |
||
EPS - normalised (p) |
|
|
21.3 |
30.1 |
21.9 |
23.6 |
26.4 |
28.5 |
EPS - adjusted (p) |
|
|
19.7 |
27.1 |
25.4 |
21.6 |
24.2 |
26.2 |
EPS - (IFRS) (p) |
|
|
18.1 |
25.2 |
22.1 |
21.6 |
24.2 |
26.2 |
Dividend per share (p) |
6.0 |
7.5 |
7.9 |
8.5 |
9.6 |
10.4 |
||
Gross Margin (%) |
29.2 |
34.0 |
27.9 |
28.5 |
29.2 |
29.9 |
||
EBITDA Margin (%) |
16.4 |
20.0 |
13.9 |
15.7 |
15.9 |
16.1 |
||
Operating Margin (before GW and except.) (%) |
14.7 |
18.6 |
12.1 |
12.3 |
12.7 |
12.9 |
||
Operating Margin (%) |
13.8 |
17.2 |
11.3 |
11.6 |
12.0 |
12.2 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
54,048 |
65,811 |
79,644 |
81,143 |
82,353 |
83,822 |
Intangible Assets |
1,358 |
2,424 |
3,206 |
3,023 |
2,868 |
2,736 |
||
Tangible Assets |
50,159 |
61,039 |
74,281 |
78,120 |
79,485 |
81,086 |
||
Investments |
2,531 |
2,348 |
2,157 |
0 |
0 |
0 |
||
Current Assets |
|
|
69,472 |
83,606 |
108,537 |
99,965 |
104,841 |
109,107 |
Stocks |
36,050 |
47,263 |
68,351 |
63,686 |
67,017 |
70,024 |
||
Debtors |
24,167 |
26,371 |
37,113 |
33,925 |
35,470 |
36,728 |
||
Cash |
7,739 |
7,260 |
2,354 |
2,354 |
2,354 |
2,354 |
||
Other |
1,516 |
2,712 |
719 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(15,989) |
(30,460) |
(46,224) |
(30,508) |
(27,775) |
(24,313) |
Creditors |
(12,640) |
(17,620) |
(23,792) |
(20,164) |
(20,994) |
(21,656) |
||
Short term borrowings |
(3,203) |
(12,697) |
(22,035) |
(9,947) |
(6,384) |
(2,260) |
||
Provisions |
(146) |
(143) |
(397) |
(397) |
(397) |
(397) |
||
Long Term Liabilities |
|
|
(16,411) |
(11,605) |
(7,711) |
(11,342) |
(9,561) |
(7,499) |
Long term borrowings |
(3,450) |
(2,624) |
(2,342) |
(4,973) |
(3,192) |
(1,130) |
||
Other long-term liabilities |
(12,961) |
(8,981) |
(5,369) |
(6,369) |
(6,369) |
(6,369) |
||
Net Assets |
|
|
91,120 |
107,352 |
134,246 |
139,258 |
149,858 |
161,117 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
15,677 |
13,442 |
(1,830) |
28,481 |
21,871 |
23,948 |
Net Interest |
(191) |
(270) |
(382) |
(1,038) |
(446) |
(199) |
||
Tax |
(2,191) |
(4,874) |
443 |
(3,774) |
(4,486) |
(4,854) |
||
Capex |
(23,909) |
(13,195) |
(11,849) |
(9,084) |
(6,452) |
(6,933) |
||
Acquisitions/disposals |
(1,041) |
(1,178) |
4,672 |
0 |
0 |
0 |
||
Financing |
(69) |
238 |
475 |
0 |
0 |
0 |
||
Dividends |
(3,378) |
(3,704) |
(4,834) |
(4,731) |
(5,143) |
(5,777) |
||
Net Cash Flow |
(15,102) |
(9,541) |
(13,305) |
9,853 |
5,344 |
6,186 |
||
Opening net debt/(cash) |
|
|
(15,958) |
(427) |
9,114 |
22,419 |
12,566 |
7,222 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
(429) |
(0) |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(427) |
9,114 |
22,419 |
12,566 |
7,222 |
1,036 |
Source: Edison Investment Research, company data
|
|
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