Treatt — Back to steady growth

Treatt (LSE: TET)

Last close As at 20/05/2024

420.00

2.00 (0.48%)

Market capitalisation

257m

More on this equity

Research: Consumer

Treatt — Back to steady growth

Treatt’s AGM trading update suggests a more normal and steady pattern of trading has resumed, following the setbacks that caused the profit warning last August. Management has clearly taken rapid steps to address the issues that were identified, and indeed this was already evident in October’s FY22 pre-close trading update. Performance remains in line with management expectations and our forecasts are unchanged.

Analyst avatar placeholder

Written by

Treatt_resized

Consumer

Treatt

Back to steady growth

AGM statement

Food and beverages

30 January 2023

Price

627p

Market cap

£378m

Net debt (£m) at 30 September 2022

22.4

Shares in issue

60.3m

Free float

100%

Code

TET

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

4.9

(6.3)

(43.7)

Rel (local)

0.6

(14.8)

(44.1)

52-week high/low

1,158p

507p

Business description

Treatt provides innovative ingredient solutions from its manufacturing bases in Europe and North America, principally for the flavours and fragrance industries and multinational consumer goods companies, with particular emphasis on the beverage sector.

Next events

H123 results

9 May 2023

Trading update

Early October 2023

FY23 results

28 November 2023

Analysts

Sara Welford

+44 (0)20 3077 5700

Russell Pointon

+44 (0)20 3077 5700

Milo Bussell

+44 (0)20 3077 5700

Treatt is a research client of Edison Investment Research Limited

Treatt’s AGM trading update suggests a more normal and steady pattern of trading has resumed, following the setbacks that caused the profit warning last August. Management has clearly taken rapid steps to address the issues that were identified, and indeed this was already evident in October’s FY22 pre-close trading update. Performance remains in line with management expectations and our forecasts are unchanged.

Year

end

Revenue
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

09/21

124.3

22.7

30.1

7.5

20.8

1.2

09/22

140.2

16.5

21.9

7.9

28.7

1.3

09/23e

148.6

17.9

23.4

8.5

26.8

1.4

09/24e

157.5

20.3

26.2

9.5

23.9

1.5

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Steady revenue growth, led by Citrus

Q123 sales were up 3% versus the prior year at constant currency and up 9% at actual currency. Citrus witnessed strong growth, with margin improvement across several key value-added products that have benefited from the execution of Treatt’s procurement and pricing strategies. Management continues to implement strong cost discipline, and the revised hedging and FX strategy has successfully managed the FX impact.

UK relocation almost complete

UK production has almost fully transferred to the new facility, with the process expected to complete in the autumn. Treatt’s UK production capacity will at least double once this occurs. The company is well-invested to capture its growth ambitions in the medium term, and hence the board looks forward to the remainder of the year with confidence.

Valuation: Trades at a small premium to peers

The current share price is discounting medium-term sales growth of 4.3%, 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 estimates remain unchanged following the announcement: we note Q1 is a relatively light quarter for Treatt, as it is a more summer-weighted business owing to its exposure to beverages in the northern hemisphere. H1 results will be published on 9 May. Treatt trades at 26.8x FY23e P/E and 16.7x FY23e EV/EBITDA. On both P/E and EV/EBITDA multiples, it trades at a c 5–15% premium to its peer group, although it trades at a c 5–10% discount to peers if we exclude those that are more exposed to lower-margin commoditised products.

Exhibit 1: 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

148,596

157,512

165,387

Cost of Sales

(77,140)

(82,103)

(101,101)

(106,127)

(111,392)

(115,804)

Gross Profit

31,876

42,223

39,084

42,469

46,120

49,584

EBITDA

 

 

17,862

24,877

19,503

23,985

25,810

27,419

Operating profit (before amort. and excepts.)

 

 

16,053

23,172

17,027

18,954

20,745

22,118

Intangible Amortisation

(75)

(93)

(215)

(183)

(155)

(132)

Share based payments

(886)

(1,733)

(1,039)

(1,011)

(1,135)

(1,227)

Other

0

0

0

0

0

0

Operating Profit

15,092

21,346

15,773

17,760

19,455

20,759

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

17,916

20,299

21,919

Profit Before Tax (FRS 3)

 

 

13,741

19,617

16,179

16,722

19,009

20,560

Profit Before Tax (company)

 

 

14,801

20,919

15,256

16,722

19,009

20,560

Tax

(2,896)

(4,469)

(2,864)

(3,762)

(4,467)

(4,832)

Profit After Tax (norm)

12,762

18,090

13,215

14,153

15,832

17,088

Profit After Tax (FRS 3)

10,845

15,148

13,315

12,959

14,542

15,728

Discontinued operations

0

0

0

0

0

0

Average Number of Shares Outstanding (m)

59.8

60.1

60.4

60.4

60.4

60.4

EPS - normalised (p)

 

 

21.3

30.1

21.9

23.4

26.2

28.3

EPS - adjusted (p)

 

 

19.7

27.1

25.3

21.5

24.1

26.0

EPS - (IFRS) (p)

 

 

18.1

25.2

22.0

21.5

24.1

26.0

Dividend per share (p)

6.0

7.5

7.9

8.5

9.5

10.3

Gross Margin (%)

29.2

34.0

27.9

28.6

29.3

30.0

EBITDA Margin (%)

16.4

20.0

13.9

16.1

16.4

16.6

Operating Margin (before GW and except.) (%)

14.7

18.6

12.1

12.8

13.2

13.4

Operating Margin (%)

13.8

17.2

11.3

12.0

12.4

12.6

BALANCE SHEET

Fixed Assets

 

 

54,048

65,811

79,644

80,502

81,645

83,020

Intangible Assets

1,358

2,424

3,206

3,023

2,868

2,736

Tangible Assets

50,159

61,039

74,281

77,479

78,777

80,284

Investments

2,531

2,348

2,157

0

0

0

Current Assets

 

 

69,472

83,606

108,537

97,456

102,689

107,210

Stocks

36,050

47,263

68,351

62,410

65,840

68,801

Debtors

24,167

26,371

37,113

32,691

34,495

36,054

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)

(28,211)

(25,544)

(22,053)

Creditors

(12,640)

(17,620)

(23,792)

(19,464)

(19,790)

(19,909)

Short term borrowings

(3,203)

(12,697)

(22,035)

(8,350)

(5,357)

(1,748)

Provisions

(146)

(143)

(397)

(397)

(397)

(397)

Long Term Liabilities

 

 

(16,411)

(11,605)

(7,711)

(10,544)

(9,047)

(7,243)

Long term borrowings

(3,450)

(2,624)

(2,342)

(4,175)

(2,678)

(874)

Other long term liabilities

(12,961)

(8,981)

(5,369)

(6,369)

(6,369)

(6,369)

Net Assets

 

 

91,120

107,352

134,246

139,203

149,742

160,934

CASH FLOW

Operating Cash Flow

 

 

15,677

13,442

(1,830)

30,019

20,903

23,016

Net Interest

(191)

(270)

(382)

(1,038)

(446)

(199)

Tax

(2,191)

(4,874)

443

(3,762)

(4,467)

(4,832)

Capex

(23,909)

(13,195)

(11,849)

(8,229)

(6,363)

(6,808)

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)

(4,741)

(5,137)

(5,764)

Net Cash Flow

(15,102)

(9,541)

(13,305)

12,248

4,490

5,414

Opening net debt/(cash)

 

 

(15,958)

(427)

9,114

22,419

10,171

5,681

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

10,171

5,681

267

Source: Edison Investment Research, company data


General disclaimer and copyright

This report has been commissioned by Treatt and prepared and issued by Edison, in consideration of a fee payable by Treatt. Edison Investment Research standard fees are £60,000 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 research department of Edison 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 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

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.

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

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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 Treatt and prepared and issued by Edison, in consideration of a fee payable by Treatt. Edison Investment Research standard fees are £60,000 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 research department of Edison 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 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

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.

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

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

More on Treatt

View All

Latest from the Consumer sector

View All Consumer content
Aqua Libra, London May 9th 2022Photographs Tim Bishop/Britvic PLC

Consumer

Britvic — Buoyant volumes in H124

Consumer

Topps Tiles — Looking to the future

Beckton-Factory

Consumer

Britvic — Buoyant volumes in H124

Consumer

Greggs — Encouraging start to FY24

Research: TMT

YouGov — Resilience in a more difficult macro environment

YouGov’s trading update covering the six months to end January confirms that the group is on track to meet the full year market revenue consensus of £264m, 19% ahead of the prior year. This is a little ahead of our modelling (£255m), so we have adjusted accordingly. Our operating profit forecast is unchanged, reflecting a slight shift in mix towards Custom Research, which runs with structurally lower operating margins than Data Products. The search for a new CEO is ongoing, with current CEO Stephan Shakespeare set to step across to be non-executive chair in August. YouGov’s strategic plan for FY24–26 remains in the preparation phase.

Continue Reading

Subscribe to Edison

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

Sign up for free