Last close As at 05/08/2026
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Market capitalisation
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Research: Consumer
Treatt has had another successful half year, and the COVID-19 pandemic has, to date, had no adverse effect on the business. As previously stated, the sharp fall in citrus prices during FY19 has continued into H120, hence H1 revenue is down 5.6% at constant currency. There was good growth in the other parts of the business, with tea and health & wellness as the standout performers. Building work on the new UK site has slowed due to the COVID-19 pandemic, and at this stage guidance is for relocation to be in 2021, ie a c three- to six-month delay vs previous guidance of Q420. Our forecasts and fair value remain unchanged at 530p.
Written by
Treatt |
Demonstrating its resilience |
H120 trading update |
Food & beverages |
9 April 2020 |
Share price performance
Business description
Next events
Analysts
Treatt is a research client of Edison Investment Research Limited |
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Treatt has had another successful half year, and the COVID-19 pandemic has, to date, had no adverse effect on the business. As previously stated, the sharp fall in citrus prices during FY19 has continued into H120, hence H1 revenue is down 5.6% at constant currency. There was good growth in the other parts of the business, with tea and health & wellness as the standout performers. Building work on the new UK site has slowed due to the COVID-19 pandemic, and at this stage guidance is for relocation to be in 2021, ie a c three- to six-month delay vs previous guidance of Q420. Our forecasts and fair value remain unchanged at 530p.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
09/18 |
112.2 |
13.8 |
20.3 |
5.1 |
23.8 |
1.1 |
09/19 |
112.7 |
14.0 |
19.2 |
5.5 |
25.2 |
1.2 |
09/20e |
115.0 |
14.8 |
18.9 |
5.8 |
25.5 |
1.2 |
09/21e |
119.6 |
15.8 |
20.3 |
6.2 |
23.8 |
1.3 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
COVID-19 pandemic has had no adverse effect
The company is following relevant government guidelines and has implemented appropriate health and safety measures. Its order intake has been strong, as its customers have responded to increased demand for cleaning products and beverages consumed at home. The pandemic, therefore, has so far had no adverse effect on the overall business, with the exception of the above-mentioned delay to the relocation of the UK business. This will help to preserve cash, and the company’s financial position remains extremely comfortable, with current net cash of £6.5m and total bank facilities of £25m, of which £24.9m remains undrawn.
Demand remains strong
The company continues to successfully embrace the sweet spot in flavour ingredients. Its portfolio is well-suited for the current consumer trends of clean labels and more natural, better-for-you products. The order book and current demand are looking healthy ahead of the peak seasonal period. While citrus prices have continued to be lower than the prior year during H1, they have been recovering and in H2 will start to lap easier comparatives. We therefore continue to expect revenue growth during H2. We note that the non-citrus categories have continued to perform very well, with tea revenues up 47.5%, fruit and vegetables up 9.4% and health and wellness up 19.9% during H1, and we leave our estimates unchanged. This reflects the company’s statement that demand so far has been robust and trading remains in line with the board’s expectations.
Valuation: Remains attractive
We value Treatt using a DCF model, which indicates a fair value of 530p (unchanged). On a calendarised basis, Treatt trades at 25.1x FY20e P/E and 16.5x FY20e EV/EBITDA. On both P/E and EV/EBITDA multiples, it trades in line with its peer group, as it has demonstrated its resilience and defensive qualities.
Valuation
We illustrate Treatt’s relative valuation versus its ingredients peer group in Exhibit 1 below. For 2020, Treatt trades in line with 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 1: Comparative valuation
Market cap (m) |
P/E (x) |
EV/EBITDA (x) |
Dividend yield (%) |
|||||
2020e |
2021e |
2020e |
2021e |
2020e |
2021e |
|||
Givaudan |
CHF27,856 |
32.4 |
32.0 |
24.7 |
22.0 |
5.1 |
4.8 |
|
IFF |
$11,641 |
17.7 |
17.7 |
13.9 |
13.8 |
3.0 |
3.0 |
|
Symrise |
CHF11,641 |
40.1 |
31.6 |
19.5 |
17.1 |
3.9 |
3.6 |
|
Chr Hansen |
DKK67,373 |
35.6 |
23.7 |
8.3 |
||||
Kerry |
€16,242 |
23.3 |
22.0 |
16.8 |
15.9 |
2.5 |
2.4 |
|
Ingredion |
$5,388 |
12.1 |
11.9 |
7.6 |
7.4 |
1.1 |
1.1 |
|
Peer group average |
25.1 |
25.1 |
16.5 |
16.6 |
3.1 |
3.9 |
||
Treatt |
£286 |
25.1 |
23.5 |
16.5 |
14.8 |
1.2 |
1.3 |
|
Premium/(discount) to peer group (%) |
(0.2%) |
(6.5%) |
0.0% |
(13.5%) |
(61.3%) |
(66.4%) |
||
Source: Refinitiv, Edison Investment Research. Note: Prices as of 7 April 2020.
Our DCF-derived fair value is unchanged at 530p as our forecasts are unchanged. Our longer-term sales growth forecast remains at 5.0% pa, falling to 2% growth in perpetuity. Our DCF is calculated based on a WACC of 6.8% (encompassing a beta of 0.8, an equity risk premium of 5.0% and a borrowing spread of 5.0%) and a terminal growth rate of 2%.
Exhibit 2: Financial summary
£000s |
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 |
114,971 |
119,570 |
124,353 |
Cost of Sales |
(67,639) |
(75,985) |
(84,407) |
(84,060) |
(85,281) |
(88,453) |
(91,743) |
||
Gross Profit |
20,401 |
25,265 |
27,756 |
28,657 |
29,690 |
31,117 |
32,610 |
||
EBITDA |
|
|
11,604 |
15,049 |
16,627 |
15,785 |
16,896 |
19,116 |
20,076 |
Operating Profit (before amort., except and sbp.) |
|
|
10,257 |
13,650 |
15,108 |
14,226 |
14,980 |
15,742 |
16,622 |
Intangible Amortisation |
(142) |
(137) |
(124) |
(90) |
(77) |
(65) |
(55) |
||
Share based payments |
(566) |
(966) |
(1,040) |
(637) |
(674) |
(723) |
(766) |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
9,549 |
12,547 |
13,944 |
13,499 |
14,229 |
14,953 |
15,800 |
||
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 |
14,780 |
15,830 |
16,766 |
Profit Before Tax (FRS 3) |
|
|
8,293 |
11,696 |
11,537 |
12,545 |
14,029 |
15,042 |
15,945 |
Profit Before Tax (company) |
|
|
8,846 |
11,696 |
12,642 |
13,300 |
14,029 |
15,042 |
15,945 |
Tax |
(2,144) |
(3,129) |
(2,284) |
(2,673) |
(3,577) |
(3,836) |
(4,066) |
||
Profit After Tax (norm) |
7,410 |
9,670 |
11,522 |
11,354 |
11,202 |
11,994 |
12,701 |
||
Profit After Tax (FRS 3) |
6,149 |
8,567 |
9,253 |
9,872 |
10,452 |
11,206 |
11,879 |
||
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 |
60.2 |
60.2 |
60.2 |
||
EPS - normalised (p) |
|
|
14.3 |
18.5 |
20.3 |
19.2 |
18.9 |
20.3 |
21.5 |
EPS - normalised & fully diluted (p) |
|
|
14.1 |
17.9 |
19.8 |
18.9 |
18.7 |
20.0 |
21.2 |
EPS - (IFRS) (p) |
|
|
11.8 |
16.4 |
18.0 |
17.8 |
17.7 |
18.9 |
20.1 |
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 |
25.8 |
26.0 |
26.2 |
||
EBITDA Margin (%) |
13.2 |
14.9 |
14.8 |
14.0 |
14.7 |
16.0 |
16.1 |
||
Operating Margin (before GW and except.) (%) |
11.7 |
13.5 |
13.5 |
12.6 |
13.0 |
13.2 |
13.4 |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
16,161 |
19,532 |
21,863 |
31,730 |
44,462 |
39,316 |
36,171 |
Intangible Assets |
3,364 |
3,331 |
752 |
845 |
769 |
703 |
648 |
||
Tangible Assets |
11,361 |
14,821 |
20,038 |
29,485 |
42,293 |
37,212 |
34,123 |
||
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 |
97,628 |
99,567 |
101,689 |
Stocks |
29,990 |
42,878 |
39,642 |
36,799 |
37,190 |
38,439 |
39,727 |
||
Debtors |
17,853 |
19,973 |
28,828 |
23,020 |
23,250 |
23,941 |
24,775 |
||
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) |
(29,212) |
(21,481) |
(14,883) |
Creditors |
(15,834) |
(19,266) |
(16,479) |
(11,784) |
(11,155) |
(11,003) |
(10,822) |
||
Short term borrowings |
(487) |
(7,680) |
(19,244) |
(16,860) |
(18,057) |
(10,478) |
(4,062) |
||
Provisions |
(67) |
(57) |
(58) |
(261) |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(17,021) |
(14,281) |
(6,858) |
(13,876) |
(19,336) |
(15,346) |
(11,938) |
Long term borrowings |
(7,755) |
(7,293) |
(3,001) |
(4,369) |
(9,029) |
(5,239) |
(2,031) |
||
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 |
93,542 |
102,056 |
111,039 |
CASH FLOW |
|||||||||
Operating Cash Flow |
|
|
10,804 |
4,683 |
3,580 |
20,544 |
15,898 |
16,825 |
17,573 |
Net Interest |
(703) |
(913) |
(609) |
(199) |
(200) |
88 |
144 |
||
Tax |
(2,022) |
(2,822) |
(2,978) |
(2,208) |
(3,577) |
(3,836) |
(4,066) |
||
Capex |
(679) |
(5,111) |
(6,190) |
(10,392) |
(14,725) |
1,706 |
(365) |
||
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) |
(3,662) |
||
Net Cash Flow |
4,724 |
(8,585) |
20,374 |
6,142 |
(5,856) |
11,369 |
9,624 |
||
Opening net debt/(cash) |
|
|
6,155 |
1,654 |
10,225 |
(10,059) |
(15,958) |
(10,101) |
(21,470) |
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) |
(10,101) |
(21,470) |
(31,094) |
Source: Company data, Edison Investment Research
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Research: TMT
EQS Group delivered FY19 revenue and EBITDA in line with market expectations and is making good progress in its transformation to a cloud-based provider of corporate compliance and investor relations solutions. There are some effects of the COVID-19 pandemic that play to EQS’s strengths, such as hosting webcasts and virtual AGMs. However, the current dearth of IPOs and longer-term likely increase in corporate insolvencies reduce the potential client pool. We currently maintain our revenue and profit forecasts for FY20 except for some small adjustments post FY19, mindful that we may need to review forecasts as the economic situation clarifies. The valuation remains well below peers and DCF.