Last close As at 06/08/2026
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Market capitalisation
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Research: Consumer
Treatt has had another successful year, and the COVID-19 pandemic so far has not materially affected trading performance. The sharp fall in citrus prices has had an impact on revenue growth, which is down 3% at constant currency for FY20. However, profit performance was strong as there was good growth in the other parts of the business, with health & wellness and fruit & vegetables posting double-digit revenue growth, and with the higher-margin parts of the business continuing to outperform. The UK relocation project continues, with construction nearing completion and a move to the new site expected in spring 2021, and the outlook for FY21 is cautiously optimistic. Our fair value increases to 670p (from 560p).
Written by
Treatt |
Another solid performance |
FY trading statement |
Food & beverages |
9 October 2020 |
Share price performance
Business description
Next events
Analysts
is a research client of Edison Investment Research Limited |
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Treatt has had another successful year, and the COVID-19 pandemic so far has not materially affected trading performance. The sharp fall in citrus prices has had an impact on revenue growth, which is down 3% at constant currency for FY20. However, profit performance was strong as there was good growth in the other parts of the business, with health & wellness and fruit & vegetables posting double-digit revenue growth, and with the higher-margin parts of the business continuing to outperform. The UK relocation project continues, with construction nearing completion and a move to the new site expected in spring 2021, and the outlook for FY21 is cautiously optimistic. Our fair value increases to 670p (from 560p).
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
09/18 |
112.2 |
13.8 |
20.3 |
5.1 |
28.9 |
0.9 |
09/19 |
112.7 |
14.0 |
19.2 |
5.5 |
30.5 |
0.9 |
09/20e |
109.3 |
14.7 |
18.9 |
5.8 |
31.0 |
1.0 |
09/21e |
114.8 |
15.8 |
20.3 |
6.2 |
28.9 |
1.1 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Flavours and fragrances an attractive market
The flavours and fragrances market continues to be an attractive space, and Treatt successfully embraces the sweet spot. Its portfolio is well-suited for the current consumer trends of clean labels and more natural, better-for-you products. For example, the consumer shift away from categories such as beer and towards products such as craft beers, alcoholic seltzers and cocktails – which all contain natural flavourings – serves as a material driver of growth for the whole flavour industry, and for Treatt in particular.
Margins continue to improve
Treatt’s continued focus on value-added products has helped to offset the impact of both the COVID-19 pandemic and lower orange oil prices. Gross margins in the citrus category – and indeed absolute gross profits – were above the prior year, as the business increasingly focuses on value-added customer solutions and moves away from commodity products. At group level, gross margins were also up as again the company derived a greater proportion of its sales from value-added products and categories. The company reported that it ended FY20 with net cash of £1.0m on a pre-IFRS 16 basis.
Valuation: Fair value of 670p
We value Treatt using a DCF model, which indicates a fair value of 670p (from 560p previously). We have reduced our risk-free rate assumption from 3% to 2% given the current outlook for interest rates globally, and hence our WACC falls from 7.0% to 6.0%. Our earnings estimates remain broadly unchanged following the announcement. On a calendarised basis, Treatt trades at 28.5x FY21e P/E and 16.4x FY21e EV/EBITDA. On both P/E and EV/EBITDA multiples, it trades at a c 6–7% discount to its peer group.
Forecasts revision
We update our forecasts to reflect the latest trading. We cut our revenue estimates to factor in the continued weakness in citrus pricing, but our profit forecasts remain broadly unchanged. We illustrate the changes in Exhibit 1 below.
Exhibit 1: Old vs new key P&L forecasts
EPS (p)* |
PBT* (£000s) |
Revenue (£000s) |
||||||||
Old |
New |
% change |
Old |
New |
% change |
Old |
New |
% change |
||
FY20e |
17.7 |
17.6 |
-0.3% |
14,029 |
13,987 |
-0.3% |
114,971 |
109,335 |
-4.9% |
|
FY21e |
18.9 |
18.9 |
0.3% |
14,981 |
15,020 |
0.3% |
119,570 |
114,802 |
-4.0% |
|
FY22e |
20.0 |
20.0 |
0.3% |
15,864 |
15,912 |
0.3% |
124,353 |
119,394 |
-4.0% |
|
Source: Edison Investment Research. Note: *Stated on company normalised basis, which is pre-exceptional but after amortisation of acquired intangibles and share-based payments.
We note the citrus category witnessed a 10% reduction in revenue in FY20, owing to the fall in citrus prices. The category now represents 50% of group revenues. Health & wellness grew by 16%, while fruit & vegetables also performed well and revenues were up 10%. Tea has historically been a strong category for Treatt, and indeed revenues were up 47% during H1, but the division was materially affected by the loss of on-trade business during H2, and has thus ended the year with revenues down 2%. Herbs, spices & florals grew 8%, and the aroma and high-impact chemicals business was broadly flat year-on-year.
The outlook for FY21 is cautiously optimistic, and the board expects to see further growth across all its product categories.
Valuation
We illustrate Treatt’s relative valuation versus its ingredients peer group in Exhibit 2 below. For 2021, Treatt trades at a c 6–7% discount to its peer group on both a P/E and EV/EBITDA basis. Although it is smaller than its peers, its portfolio of products is increasingly specialised and the company has demonstrated its resilience with a robust performance despite the COVID-19 pandemic.
Exhibit 2: Comparative valuation
Market cap (m) |
P/E (x) |
EV/EBITDA (x) |
Dividend yield (%) |
|||||
2020e |
2021e |
2020e |
2021e |
2020e |
2021e |
|||
Givaudan |
CHF 37,219 |
43.3 |
40.1 |
29.3 |
27.7 |
1.6 |
1.7 |
|
IFF |
$12,459 |
20.2 |
18.7 |
15.7 |
14.3 |
2.6 |
2.8 |
|
Symrise |
CHF 15,796 |
43.5 |
39.8 |
22.4 |
21.1 |
0.9 |
1.0 |
|
Chr Hansen |
DKK 6,264 |
45.5 |
43.1 |
30.0 |
27.5 |
1.3 |
1.5 |
|
Kerry |
€ 87,797 |
31.6 |
27.4 |
21.4 |
19.3 |
0.7 |
0.8 |
|
Ingredion |
$2,608 |
13.5 |
11.9 |
8.0 |
7.4 |
3.2 |
3.3 |
|
Peer group average |
33.8 |
32.9 |
21.8 |
21.2 |
1.8 |
1.7 |
||
Treatt |
346.6 |
30.5 |
28.5 |
19.9 |
16.4 |
1.0 |
1.1 |
|
Premium/(discount) to peer group (%) |
(9.2%) |
(7.4%) |
0.3% |
(6.1%) |
(46.3%) |
(41.3%) |
||
Source: Refinitiv, Edison Investment Research. Note: Prices as of 8 October 2020. Calendarised
We upgrade our DCF-derived fair value to 670p (from 560p previously). Our longer-term sales growth forecast remains at 5.0% pa, falling to 2% growth in perpetuity, but we reduce our risk-free rate from 3% to 2% given the current outlook for interest rates globally, and in the UK in particular. Our WACC therefore moves to 6.0% (from 7.0%) as our other assumptions remain unchanged (beta of 0.8, an equity risk premium of 5.0% and a borrowing spread of 5.0%).
Exhibit 3: Financial summary
£000's |
2016 |
2017 |
2018 |
2019 |
2020e |
2021e |
2022e |
||
Year-end September |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||||
Revenue |
|
|
88,040 |
101,250 |
112,163 |
112,717 |
109,335 |
114,802 |
119,394 |
Cost of Sales |
(67,639) |
(75,985) |
(84,407) |
(84,060) |
(80,445) |
(84,352) |
(87,488) |
||
Gross Profit |
20,401 |
25,265 |
27,756 |
28,657 |
28,891 |
30,450 |
31,907 |
||
EBITDA |
|
|
11,604 |
15,049 |
16,627 |
15,785 |
16,759 |
20,847 |
22,334 |
Operating Profit (before amort., except and share-based payments) |
|
|
10,257 |
13,650 |
15,108 |
14,226 |
14,936 |
15,718 |
16,587 |
Intangible Amortisation |
(142) |
(137) |
(124) |
(90) |
(77) |
(65) |
(55) |
||
Share based payments |
(566) |
(966) |
(1,040) |
(637) |
(672) |
(722) |
(765) |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
9,549 |
12,547 |
13,944 |
13,499 |
14,187 |
14,931 |
15,767 |
||
Net Interest |
(703) |
(851) |
(1,302) |
(199) |
(200) |
88 |
144 |
||
Exceptionals |
(553) |
0 |
(1,105) |
(755) |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
9,554 |
12,799 |
13,806 |
14,027 |
14,736 |
15,807 |
16,732 |
Profit Before Tax (FRS 3) |
|
|
8,293 |
11,696 |
11,537 |
12,545 |
13,987 |
15,020 |
15,912 |
Profit Before Tax (company) |
|
|
8,846 |
11,696 |
12,642 |
13,300 |
13,987 |
15,020 |
15,912 |
Tax |
(2,144) |
(3,129) |
(2,284) |
(2,673) |
(3,567) |
(3,830) |
(4,057) |
||
Profit After Tax (norm) |
7,410 |
9,670 |
11,522 |
11,354 |
11,170 |
11,977 |
12,674 |
||
Profit After Tax (FRS 3) |
6,149 |
8,567 |
9,253 |
9,872 |
10,421 |
11,190 |
11,854 |
||
Discontinued operations |
0 |
978 |
2,976 |
(1,084) |
0 |
0 |
0 |
||
Average Number of Shares Outstanding (m) |
51.9 |
52.2 |
56.8 |
59.1 |
59.1 |
59.1 |
59.1 |
||
EPS - normalised (p) |
|
|
14.3 |
18.5 |
20.3 |
19.2 |
18.9 |
20.3 |
21.4 |
EPS - normalised & fully diluted (p) |
|
|
14.1 |
17.9 |
19.8 |
18.9 |
18.6 |
20.0 |
21.1 |
EPS - (IFRS) (p) |
|
|
11.8 |
16.4 |
18.0 |
17.8 |
17.6 |
18.9 |
20.0 |
Dividend per share (p) |
4.4 |
4.8 |
5.1 |
5.5 |
5.8 |
6.2 |
6.6 |
||
Gross Margin (%) |
23.2 |
25.0 |
24.7 |
25.4 |
26.4 |
26.5 |
26.7 |
||
EBITDA Margin (%) |
13.2 |
14.9 |
14.8 |
14.0 |
15.3 |
18.2 |
18.7 |
||
Operating Margin (before GW and except.) (%) |
11.7 |
13.5 |
13.5 |
12.6 |
13.7 |
13.7 |
13.9 |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
16,161 |
19,532 |
21,863 |
31,730 |
53,471 |
56,500 |
50,989 |
Intangible Assets |
3,364 |
3,331 |
752 |
845 |
769 |
703 |
648 |
||
Tangible Assets |
11,361 |
14,821 |
20,038 |
29,485 |
51,303 |
54,396 |
48,940 |
||
Investments |
1,436 |
1,380 |
1,073 |
1,400 |
1,400 |
1,400 |
1,400 |
||
Current Assets |
|
|
54,435 |
68,230 |
102,401 |
98,158 |
96,690 |
99,206 |
101,329 |
Stocks |
29,990 |
42,878 |
39,642 |
36,799 |
37,393 |
39,033 |
40,355 |
||
Debtors |
17,853 |
19,973 |
28,828 |
23,020 |
22,111 |
22,987 |
23,787 |
||
Cash |
6,588 |
4,748 |
32,304 |
37,187 |
37,187 |
37,187 |
37,187 |
||
Other |
4 |
631 |
1,627 |
1,152 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(16,388) |
(27,003) |
(35,781) |
(28,905) |
(34,397) |
(32,546) |
(24,393) |
Creditors |
(15,834) |
(19,266) |
(16,479) |
(11,784) |
(10,499) |
(10,450) |
(10,271) |
||
Short term borrowings |
(487) |
(7,680) |
(19,244) |
(16,860) |
(23,898) |
(22,096) |
(14,122) |
||
Provisions |
(67) |
(57) |
(58) |
(261) |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(17,021) |
(14,281) |
(6,858) |
(13,876) |
(22,256) |
(21,155) |
(16,968) |
Long term borrowings |
(7,755) |
(7,293) |
(3,001) |
(4,369) |
(11,949) |
(11,048) |
(7,061) |
||
Other long-term liabilities |
(9,266) |
(6,988) |
(3,857) |
(9,507) |
(10,307) |
(10,107) |
(9,907) |
||
Net Assets |
|
|
37,187 |
46,478 |
81,625 |
87,107 |
93,509 |
102,005 |
110,957 |
CASH FLOW |
|||||||||
Operating Cash Flow |
|
|
10,804 |
4,683 |
3,580 |
20,544 |
16,042 |
18,082 |
19,833 |
Net Interest |
(703) |
(913) |
(609) |
(199) |
(200) |
88 |
144 |
||
Tax |
(2,022) |
(2,822) |
(2,978) |
(2,208) |
(3,567) |
(3,830) |
(4,057) |
||
Capex |
(679) |
(5,111) |
(6,190) |
(10,392) |
(23,640) |
(8,222) |
(291) |
||
Acquisitions/disposals |
(861) |
(1,667) |
8,357 |
855 |
0 |
0 |
0 |
||
Financing |
280 |
270 |
21,090 |
622 |
0 |
0 |
0 |
||
Dividends |
(2,095) |
(3,025) |
(2,876) |
(3,080) |
(3,253) |
(3,415) |
(3,667) |
||
Net Cash Flow |
4,724 |
(8,585) |
20,374 |
6,142 |
(14,618) |
2,703 |
11,961 |
||
Opening net debt/(cash) |
|
|
6,155 |
1,654 |
10,225 |
(10,059) |
(15,958) |
(1,340) |
(4,043) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
(223) |
14 |
(90) |
(243) |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
1,654 |
10,225 |
(10,059) |
(15,958) |
(1,340) |
(4,043) |
(16,004) |
Source: Company accounts, Edison Investment Research
|
|
Research: Financials
In H120, RCM Beteiligungs group reported €10.2m in revenues against €19.2m in H119. The decline was attributable to a lower volume of property disposals, as rental income remained broadly stable at €0.8m. The large volume drop in transaction activity is mostly due to a weak Q220 amid the COVID-19 outbreak, as well as a strong prior-year comparison, which included the €9.8m disposal of a residential and commercial complex. Lower disposal volume translated into a c 48.8% y-o-y decline in consolidated pre-tax profit to €2.1m. However, a €2.4m sale was completed in Q320, suggesting some pick-up in the real estate investment market activity.