Currency in GBP
Last close As at 26/05/2023
GBP7.24
▲ 20.00 (2.84%)
Market capitalisation
GBP436m
Treatt’s FY22 trading update was in line with the reduced guidance issued on 15 August, ie adjusted PBT of £15–15.3m. Revenue growth of 13% is in line with market expectations and the dividend policy remains unchanged. Revenue growth spanned all categories with the exception of tea, as per the August statement. Health and Wellness and Synthetic Aroma witnessed particularly strong growth. The over-hedging, which was highlighted in August and caused part of the downgrade to profits, has now been corrected. While the economic environment remains uncertain, management is encouraged by prevailing consumer trends, particularly in beverages, and is hence confident that the business can revert to its trajectory of growth. Our forecasts are unchanged, with the exception of net debt, and our fair value remains 630p.
Treatt |
Holding steady |
FY22 trading update |
Food and beverages |
14 October 2022 |
Share price performance
Business description
Next events
Analysts
Treatt is a research client of Edison Investment Research Limited |
Treatt’s FY22 trading update was in line with the reduced guidance issued on 15 August, ie adjusted PBT of £15–15.3m. Revenue growth of 13% is in line with market expectations and the dividend policy remains unchanged. Revenue growth spanned all categories with the exception of tea, as per the August statement. Health and Wellness and Synthetic Aroma witnessed particularly strong growth. The over-hedging, which was highlighted in August and caused part of the downgrade to profits, has now been corrected. While the economic environment remains uncertain, management is encouraged by prevailing consumer trends, particularly in beverages, and is hence confident that the business can revert to its trajectory of growth. Our forecasts are unchanged, with the exception of net debt, and our fair value remains 630p.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
09/20 |
109.0 |
15.8 |
21.3 |
6.0 |
27.0 |
1.0% |
09/21 |
124.3 |
22.7 |
30.1 |
7.5 |
19.1 |
1.3% |
09/22e |
138.6 |
16.3 |
21.8 |
7.5 |
26.4 |
1.3% |
09/23e |
146.9 |
18.0 |
23.7 |
8.1 |
24.3 |
1.4% |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Investment phase complete
Treatt has made substantial investments in both its asset base and people over the last few years, which has created a strong position from which it can support future growth. The investment phase is largely complete now, with production almost fully transitioned to the new UK site, and no further expansion required in terms of personnel. As a consequence, management does not expect any significant increase in administrative costs (beyond inflation) in the short to medium term. We note net debt at £23m was somewhat higher than our £18m forecast. The difference stems from Treatt’s decision to invest in inventory towards year-end, and it is now holding “prudent levels of inventory to mitigate supply chain risks for customers”, which is sensible in the current volatile economic environment.
Building a more resilient business
The August downgrade came as a surprise for the market and also highlighted some weaknesses in the company’s systems. Management has acted swiftly to address these, with new FX management systems in place and a more robust approach to forecasting. The speed of implementation underscores the sense of urgency felt by the management team and is testament to Treatt’s business agility.
Valuation: Fair value remains at 630p
Treatt trades at 24.3x and 14.8x FY23 P/E and EV/EBITDA, a c 15% and 5% premium to its peers respectively. We value Treatt on a DCF basis using a WACC of 7.7%, a terminal EBIT margin of 20.0% and terminal sales growth of 2.0%. Our fair value remains unchanged at 630p.
Exhibit 1: Financial summary
£000's |
2020 |
2021 |
2022e |
2023e |
2024e |
2025e |
||
Year-end 30 September |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
109,016 |
124,326 |
138,623 |
146,941 |
155,757 |
163,545 |
Cost of Sales |
(77,140) |
(82,103) |
(100,140) |
(105,119) |
(110,336) |
(114,708) |
||
Gross Profit |
31,876 |
42,223 |
38,484 |
41,822 |
45,421 |
48,837 |
||
EBITDA |
|
|
17,862 |
24,877 |
21,682 |
23,990 |
25,839 |
27,482 |
Operating profit (before amort. and excepts.) |
|
16,053 |
23,172 |
16,746 |
18,966 |
20,781 |
22,190 |
|
Intangible Amortisation |
(75) |
(93) |
(79) |
(67) |
(57) |
(49) |
||
Share based payments |
(886) |
(1,733) |
(1,184) |
(1,457) |
(1,613) |
(1,749) |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
15,092 |
21,346 |
15,483 |
17,441 |
19,110 |
20,393 |
||
Net Interest |
(291) |
(427) |
(415) |
(1,004) |
(677) |
(413) |
||
Exceptionals |
(1,060) |
(1,302) |
(3,000) |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
15,762 |
22,745 |
16,331 |
17,962 |
20,104 |
21,777 |
Profit Before Tax (FRS 3) |
|
|
13,741 |
19,617 |
12,068 |
16,437 |
18,434 |
19,980 |
Profit Before Tax (company) |
|
|
14,801 |
20,919 |
15,068 |
16,437 |
18,434 |
19,980 |
Tax |
(2,896) |
(4,469) |
(3,219) |
(3,698) |
(4,332) |
(4,695) |
||
Profit After Tax (norm) |
12,762 |
18,090 |
13,112 |
14,264 |
15,772 |
17,082 |
||
Profit After Tax (FRS 3) |
10,845 |
15,148 |
8,849 |
12,739 |
14,102 |
15,285 |
||
Discontinued operations |
0 |
0 |
0 |
0 |
0 |
0 |
||
Average Number of Shares Outstanding (m) |
59.8 |
60.1 |
60.1 |
60.1 |
60.1 |
60.1 |
||
EPS - normalised (p) |
|
|
21.3 |
30.1 |
21.8 |
23.7 |
26.2 |
28.4 |
EPS - adjusted (p) |
|
|
19.7 |
27.1 |
19.7 |
21.2 |
23.5 |
25.4 |
EPS - (IFRS) (p) |
|
|
18.1 |
25.2 |
14.7 |
21.2 |
23.5 |
25.4 |
Dividend per share (p) |
6.0 |
7.5 |
7.5 |
8.1 |
8.9 |
9.7 |
||
Gross Margin (%) |
29.2 |
34.0 |
27.8 |
28.5 |
29.2 |
29.9 |
||
EBITDA Margin (%) |
16.4 |
20.0 |
15.6 |
16.3 |
16.6 |
16.8 |
||
Operating Margin (before GW and except.) (%) |
14.7 |
18.6 |
12.1 |
12.9 |
13.3 |
13.6 |
||
Operating Margin (%) |
13.8 |
17.2 |
11.2 |
11.9 |
12.3 |
12.5 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
54,048 |
65,811 |
66,319 |
69,431 |
70,653 |
72,084 |
Intangible Assets |
1,358 |
2,424 |
2,345 |
2,278 |
2,221 |
2,172 |
||
Tangible Assets |
50,159 |
61,039 |
63,182 |
66,362 |
67,640 |
69,119 |
||
Investments |
2,531 |
2,348 |
792 |
792 |
792 |
792 |
||
Current Assets |
|
|
69,472 |
83,606 |
100,138 |
101,302 |
87,363 |
97,716 |
Stocks |
36,050 |
47,263 |
62,381 |
61,715 |
65,107 |
68,035 |
||
Debtors |
24,167 |
26,371 |
30,497 |
32,327 |
34,111 |
35,653 |
||
Cash |
7,739 |
7,260 |
7,260 |
7,260 |
(11,854) |
(5,972) |
||
Other |
1,516 |
2,712 |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(15,989) |
(30,460) |
(38,534) |
(35,042) |
(19,427) |
(19,544) |
Creditors |
(12,640) |
(17,620) |
(18,614) |
(18,961) |
(19,284) |
(19,401) |
||
Short term borrowings |
(3,203) |
(12,697) |
(19,777) |
(15,939) |
0 |
0 |
||
Provisions |
(146) |
(143) |
(143) |
(143) |
(143) |
(143) |
||
Long Term Liabilities |
|
|
(16,411) |
(11,605) |
(19,869) |
(17,950) |
(9,981) |
(9,981) |
Long term borrowings |
(3,450) |
(2,624) |
(9,888) |
(7,969) |
0 |
0 |
||
Other long term liabilities |
(12,961) |
(8,981) |
(9,981) |
(9,981) |
(9,981) |
(9,981) |
||
Net Assets |
|
|
91,120 |
107,352 |
108,054 |
117,741 |
128,608 |
140,275 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
15,677 |
13,892 |
1,933 |
23,173 |
20,987 |
23,128 |
Net Interest |
(191) |
(270) |
(415) |
(1,004) |
(677) |
(413) |
||
Tax |
(2,191) |
(4,874) |
(3,219) |
(3,698) |
(4,332) |
(4,695) |
||
Capex |
(23,909) |
(13,195) |
(7,079) |
(8,204) |
(6,336) |
(6,771) |
||
Acquisitions/disposals |
(1,041) |
(1,178) |
0 |
0 |
0 |
0 |
||
Financing |
(69) |
(212) |
0 |
0 |
0 |
0 |
||
Dividends |
(3,378) |
(3,704) |
(4,509) |
(4,509) |
(4,848) |
(5,367) |
||
Net Cash Flow |
(15,102) |
(9,541) |
(13,290) |
5,757 |
4,794 |
5,883 |
||
Opening net debt/(cash) |
|
|
(15,958) |
(427) |
9,114 |
22,404 |
16,648 |
11,854 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
(429) |
(0) |
0 |
0 |
(0) |
0 |
||
Closing net debt/(cash) |
|
|
(427) |
9,114 |
22,404 |
16,648 |
11,854 |
5,972 |
Source: Company accounts, Edison Investment Research
|
|
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