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Research: Consumer
Treatt’s FY23 trading update demonstrated a resilient performance despite the tougher trading environment towards the end of the year. Revenue growth of c 5% (to c £147m) has been driven by price increases, which have mitigated inflationary pressures and supported margins. Sales in H223 slowed due to destocking as clients reduced inventories, although management notes early signs that this is reversing. New markets (Coffee, China and Treattzest citrus) displayed particularly strong growth, with revenue up 60% to £16m. Cash generation was at a record high leading to net debt more than halving in a year to £10.5m (FY22: £22.4m).
Treatt |
FY23 profits in line despite headwinds |
FY23 trading update |
Food and beverages |
16 October 2023 |
Share price performance
Business description
Next events
Analysts
Treatt is a research client of Edison Investment Research Limited |
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Treatt’s FY23 trading update demonstrated a resilient performance despite the tougher trading environment towards the end of the year. Revenue growth of c 5% (to c £147m) has been driven by price increases, which have mitigated inflationary pressures and supported margins. Sales in H223 slowed due to destocking as clients reduced inventories, although management notes early signs that this is reversing. New markets (Coffee, China and Treattzest citrus) displayed particularly strong growth, with revenue up 60% to £16m. Cash generation was at a record high leading to net debt more than halving in a year to £10.5m (FY22: £22.4m).
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
09/21 |
124.3 |
22.7 |
30.1 |
7.5 |
15.0 |
1.7 |
09/22 |
140.2 |
16.5 |
21.9 |
7.9 |
20.6 |
1.7 |
09/23e |
147.2 |
18.0 |
23.5 |
8.0 |
19.2 |
1.8 |
09/24e |
156.0 |
20.4 |
26.3 |
8.6 |
17.2 |
1.9 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Lower than expected revenue but profit in line
Treatt expects to report revenue of c £147m in FY23, up 5% y-o-y but below our previous expectations of £154m, due to the destocking from clients in H223 as they focused on managing working capital. Management has successfully mitigated lower volumes and raw material inflation through a combination of price increases and strict cost controls, resulting in an 11% y-o-y increase in PBT pre-exceptional items to c £17m. Cost controls are evidenced by the year-on-year reduction in headcount of c 14%. Prior issues around foreign currency exposures have been successfully managed, with a minimal foreign exchange impact in FY23 as hedging contracts were wound up in early FY23. Management expects capex to normalise as the transition to the new site is complete.
Double-digit profit growth forecast in FY24–25
We have tweaked our FY23 estimates to reflect management’s expectations in the trading update, forecasting revenue of £147m and adjusted PBT of £17m. For FY24 and FY25, we forecast revenue growth of 5–6% with a greater adjusted PBT growth rate of 10–13% as we anticipate an improvement in gross margin and lower administration costs. With the normalisation of capex and strong cash generation, we expect a reduction in the net debt figure from £10.5m in FY23 to £5.4m in FY24, returning to net cash in FY25 of £0.6m.
Valuation: Now at a discount to peers
Treatt’s share price has been weak so far in 2023, down 28% in the year to date, although it has rallied in recent months. As such, Treatt currently trades at 19.2x FY23e P/E and 12.5x FY23e EV/EBITDA. The valuation gap to its peers has switched from a c 5–10% premium at the time of our last note to a notable discount across both multiples of c 10%.
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 |
147,194 |
156,026 |
163,827 |
Cost of Sales |
(77,140) |
(82,103) |
(101,101) |
(104,831) |
(110,185) |
(114,875) |
||
Gross Profit |
31,876 |
42,223 |
39,084 |
42,363 |
45,841 |
48,952 |
||
EBITDA |
|
|
17,862 |
24,877 |
19,503 |
23,580 |
27,853 |
30,253 |
EBITDA (company) |
|
|
16,976 |
23,144 |
18,464 |
22,713 |
26,717 |
29,007 |
Operating profit (before amort. and excepts.) |
|
16,053 |
23,172 |
17,027 |
19,009 |
21,421 |
23,333 |
|
Intangible Amortisation |
(75) |
(93) |
(215) |
(183) |
(155) |
(132) |
||
Share based payments |
(886) |
(1,733) |
(1,039) |
(866) |
(1,136) |
(1,246) |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
15,092 |
21,346 |
15,773 |
17,960 |
20,130 |
21,955 |
||
Net Interest |
(291) |
(427) |
(517) |
(1,004) |
(1,042) |
(1,016) |
||
Exceptionals |
(1,060) |
(1,302) |
923 |
(2,000) |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
15,762 |
22,745 |
16,510 |
18,005 |
20,379 |
22,317 |
Profit Before Tax (FRS 3) |
|
|
13,741 |
19,617 |
16,179 |
14,956 |
19,088 |
20,939 |
Profit Before Tax (company) |
|
|
14,801 |
20,919 |
15,256 |
16,956 |
19,088 |
20,939 |
Tax |
(2,896) |
(4,469) |
(2,864) |
(3,815) |
(4,486) |
(4,921) |
||
Profit After Tax (norm) |
12,762 |
18,090 |
13,215 |
14,190 |
15,893 |
17,396 |
||
Profit After Tax (FRS 3) |
10,845 |
15,148 |
13,315 |
11,141 |
14,602 |
16,018 |
||
Average Number of Shares Outstanding (m) |
59.8 |
60.1 |
60.3 |
60.5 |
60.5 |
60.5 |
||
EPS - normalised (p) |
|
|
21.3 |
30.1 |
21.9 |
23.5 |
26.3 |
28.8 |
EPS - adjusted (p) |
|
|
19.7 |
27.1 |
25.4 |
21.7 |
24.1 |
26.5 |
EPS - (IFRS) (p) |
|
|
18.1 |
25.2 |
22.1 |
18.4 |
24.1 |
26.5 |
Dividend per share (p) |
6.0 |
7.5 |
7.9 |
8.0 |
8.6 |
9.0 |
||
Gross Margin (%) |
29.2 |
34.0 |
27.9 |
28.8 |
29.4 |
29.9 |
||
EBITDA Margin (%) |
16.4 |
20.0 |
13.9 |
16.0 |
17.9 |
18.5 |
||
Operating Margin (before GW and except.) (%) |
14.7 |
18.6 |
12.1 |
12.9 |
13.7 |
14.2 |
||
Operating Margin (%) |
13.8 |
17.2 |
11.3 |
12.2 |
12.9 |
13.4 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
54,048 |
65,811 |
79,644 |
81,677 |
81,430 |
81,155 |
Intangible Assets |
1,358 |
2,424 |
3,206 |
3,023 |
2,868 |
2,736 |
||
Tangible Assets |
50,159 |
61,039 |
74,281 |
78,654 |
78,563 |
78,420 |
||
Investments |
2,531 |
2,348 |
2,157 |
0 |
0 |
0 |
||
Current Assets |
|
|
69,472 |
83,606 |
108,537 |
94,498 |
101,274 |
108,350 |
Stocks |
36,050 |
47,263 |
68,351 |
59,761 |
65,063 |
70,937 |
||
Debtors |
24,167 |
26,371 |
37,113 |
32,383 |
33,858 |
35,059 |
||
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) |
(28,266) |
(25,620) |
(22,308) |
Creditors |
(12,640) |
(17,620) |
(23,792) |
(19,288) |
(20,080) |
(20,712) |
||
Short term borrowings |
(3,203) |
(12,697) |
(22,035) |
(8,581) |
(5,143) |
(1,199) |
||
Provisions |
(146) |
(143) |
(397) |
(397) |
(397) |
(397) |
||
Long Term Liabilities |
|
|
(16,411) |
(11,605) |
(7,711) |
(10,660) |
(8,941) |
(6,969) |
Long term borrowings |
(3,450) |
(2,624) |
(2,342) |
(4,291) |
(2,572) |
(600) |
||
Other long term liabilities |
(12,961) |
(8,981) |
(5,369) |
(6,369) |
(6,369) |
(6,369) |
||
Net Assets |
|
|
91,120 |
107,352 |
134,246 |
137,249 |
148,144 |
160,228 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
15,677 |
13,442 |
(1,830) |
30,397 |
21,868 |
23,809 |
Net Interest |
(191) |
(270) |
(382) |
(1,004) |
(1,042) |
(1,016) |
||
Tax |
(2,191) |
(4,874) |
443 |
(3,815) |
(4,486) |
(4,921) |
||
Capex |
(23,909) |
(13,195) |
(11,849) |
(8,944) |
(6,340) |
(6,777) |
||
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) |
(4,843) |
(5,180) |
||
Net Cash Flow |
(15,102) |
(9,541) |
(13,305) |
11,902 |
5,157 |
5,916 |
||
Opening net debt/(cash) |
|
|
(15,958) |
(427) |
9,114 |
22,419 |
10,518 |
5,361 |
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 |
10,517 |
5,361 |
(555) |
Source: Company accounts, Edison Investment Research
|
|
Research: Financials
Manx Financial Group (MFX) has announced that its wholly owned subsidiary, Conister Bank, has obtained regulatory approval to accept deposits in the UK. The new licence approval – authorised by the Prudential Regulation Authority, FCA and FSA – provides a step change in Conister’s options for sourcing liquidity to fulfil its growth ambitions with a range of UK deposits and wholesale funding.