Currency in GBP
Last close As at 30/01/2023
GBP6.27
▲ −1.00 (−0.16%)
Market capitalisation
GBP377m
Research: Consumer
Treatt has continued to perform well, with the good business momentum continuing into H122. As previously flagged and as consumers emerge from the pandemic, the performance in FY22 is expected to return to more normal beverage trends, with H2 seasonally stronger than H1, and a shift back to on-trade beverage consumption. In addition, the higher-margin healthier living categories are also expected to perform better in H2, which will be reflected in the split of profitability. We raise our revenue forecasts to reflect the strong momentum, but our profit estimates remain broadly unchanged, due to mix considerations and cost inflation.
Treatt |
Reverting to a normal split |
H1 trading update |
Food & beverages |
11 April 2022 |
Share price performance
Business description
Next events
Analysts
Treatt is a research client of Edison Investment Research Limited |
Treatt has continued to perform well, with the good business momentum continuing into H122. As previously flagged and as consumers emerge from the pandemic, the performance in FY22 is expected to return to more normal beverage trends, with H2 seasonally stronger than H1, and a shift back to on-trade beverage consumption. In addition, the higher-margin healthier living categories are also expected to perform better in H2, which will be reflected in the split of profitability. We raise our revenue forecasts to reflect the strong momentum, but our profit estimates remain broadly unchanged, due to mix considerations and cost inflation.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
09/20 |
109.0 |
15.8 |
21.3 |
6.0 |
54.4 |
0.5 |
09/21 |
124.3 |
22.7 |
30.1 |
7.5 |
38.5 |
0.6 |
09/22e |
134.9 |
24.1 |
32.2 |
8.0 |
36.0 |
0.7 |
09/23e |
143.0 |
26.0 |
34.3 |
8.5 |
33.8 |
0.7 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Demand still strong
Demand remains strong, with expected revenue growth of 11% at constant currency for H122, to £66.3m. This has been driven by citrus, where Treatt has grown a number of longstanding relationships with large beverage companies, demonstrating its strong market position. Revenue growth was also strong in both synthetic aroma, and herbs, spices & florals, in part driven by higher demand for protein flavourings. Treatt’s business remains diversified as it continues to win new business with both new and existing customers, and both directly to consumer goods companies and indirectly through flavour and fragrance houses. Crucially, H1 has ended strongly and the momentum has continued into H2, with stronger growth coming from the higher-margin healthier living categories. Margins are therefore expected to be materially stronger during H2.
UK relocation nearing completion
The new UK facility is fully open, and the operational commissioning continues. According to previous guidance, most of the manufacturing will be up and running by mid CY22. Treatt has also invested in substantial inventory holdings (c six months trading), which has helped it to successfully navigate a number of supply chain challenges.
Valuation: Trading at a premium to peers
We note that the current share price is discounting medium-term sales growth of 4.5%, falling to 2.5% in perpetuity, with a WACC of 5.7% and a terminal EBIT margin of 20.0% (vs 17.2% in FY21). Our earnings estimates remain broadly unchanged following the trading update. Treatt trades at 36.0x FY22e P/E and 27.8x FY22e EV/EBITDA. It trades at a c 30% premium to its peer group on a P/E basis and a c 40% premium on EV/EBITDA, though it trades in line with peers if we exclude those that are more exposed to lower-margin commoditised products.
Forecasts
In light of the current trading trends discussed above, we raise our revenue forecasts for FY22–24 as detailed in Exhibit 1. We now believe FY22 revenues are likely to be higher than our previous expectations. We leave our growth assumptions for FY23 and FY24 unchanged, but absolute revenue forecasts increase due to the higher base. As discussed above, we believe margins are likely to be lower than we had previously forecast, and we therefore leave our profit forecasts broadly unchanged.
Exhibit 1: Old versus new key P&L forecasts
£000s |
2022e |
2023e |
2024e |
||||||
Old |
New |
Diff |
Old |
New |
Diff |
Old |
New |
Diff |
|
Revenue |
131,786 |
134,894 |
2.4% |
139,693 |
142,987 |
2.4% |
148,074 |
151,567 |
2.4% |
Operating profit |
22,034 |
22,014 |
-0.1% |
23,775 |
23,764 |
0.0% |
25,646 |
25,644 |
0.0% |
PBT* |
22,016 |
21,993 |
-0.1% |
23,815 |
23,796 |
-0.1% |
25,738 |
25,728 |
0.0% |
PBT (pre exceptional) Edison |
24,076 |
24,050 |
-0.1% |
25,994 |
25,974 |
-0.1% |
28,047 |
28,037 |
0.0% |
Basic EPS* (p) |
28.8 |
28.8 |
-0.1% |
30.7 |
30.7 |
-0.1% |
32.7 |
32.7 |
0.0% |
Basic EPS (pre exceptional) Edison (p) |
32.2 |
32.2 |
-0.1% |
34.3 |
34.3 |
-0.1% |
36.6 |
36.6 |
0.0% |
Source: Edison Investment Research. Note: *Stated on an FRS/reported basis.
Valuation
We illustrate Treatt’s relative valuation versus its ingredients peer group in Exhibit 2 below. For 2022, Treatt trades at a c 30% premium to its peer group on a P/E basis, and a c 40% premium on an EV/EBITDA basis, though we note Kerry and Ingredion have a larger proportion of lower-margin products in their portfolios. If we exclude Kerry and Ingredion, Treatt is trading broadly in line with the remaining peers on both P/E and EV/EBITDA. 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 pandemic.
Exhibit 2: Comparative valuation
Market cap |
P/E (x) |
EV/EBITDA (x) |
Dividend yield (%) |
|||||
2022e |
2023e |
2022e |
2023e |
2022e |
2023e |
|||
Givaudan |
CHF36,784 |
39.9 |
35.7 |
26.9 |
24.9 |
1.7 |
1.8 |
|
IFF |
$32,072 |
22.2 |
18.8 |
16.9 |
15.0 |
2.5 |
2.6 |
|
Symrise |
CHF16,026 |
37.5 |
33.3 |
19.9 |
18.4 |
1.0 |
1.1 |
|
Chr Hansen |
DKK73,731 |
42.1 |
37.4 |
25.2 |
23.0 |
1.5 |
1.7 |
|
Kerry |
€18,169 |
24.6 |
22.3 |
17.6 |
16.2 |
1.0 |
1.1 |
|
Ingredion |
$5,922 |
12.6 |
11.4 |
7.9 |
7.3 |
3.0 |
3.1 |
|
Peer group average |
29.8 |
26.5 |
19.1 |
17.5 |
1.8 |
1.9 |
||
Treatt |
£691.4 |
38.2 |
35.7 |
27.8 |
23.8 |
0.7 |
0.7 |
|
Premium/(discount) to peer group (%) |
28.3% |
34.9% |
45.7% |
36.4% |
(63.6%) |
(63.3%) |
Source: Refinitiv, Edison Investment Research. Note: Prices as of 7 April 2022.
Exhibit 3: Financial summary
£000s |
2018 |
2019 |
2020 |
2021 |
2022e |
2023e |
2024e |
||
Year end September |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||||
Revenue |
|
|
112,163 |
112,717 |
109,016 |
124,326 |
134,894 |
142,987 |
151,567 |
Cost of Sales |
(84,407) |
(84,060) |
(77,140) |
(82,103) |
(89,082) |
(93,998) |
(99,183) |
||
Gross Profit |
27,756 |
28,657 |
31,876 |
42,223 |
45,812 |
48,990 |
52,384 |
||
EBITDA |
|
|
16,627 |
15,785 |
17,862 |
24,877 |
28,995 |
30,951 |
32,995 |
Operating Profit (before amort., except and sbp.) |
|
|
15,108 |
14,226 |
16,053 |
23,172 |
24,071 |
25,941 |
27,953 |
Intangible Amortisation |
(124) |
(90) |
(75) |
(93) |
(79) |
(67) |
(57) |
||
Share based payments |
(1,040) |
(637) |
(886) |
(1,733) |
(1,979) |
(2,110) |
(2,252) |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
13,944 |
13,499 |
15,092 |
21,346 |
22,014 |
23,764 |
25,644 |
||
Net Interest |
(1,302) |
(199) |
(291) |
(427) |
(21) |
33 |
84 |
||
Exceptionals |
(1,105) |
(755) |
(1,060) |
(1,302) |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
13,806 |
14,027 |
15,762 |
22,745 |
24,050 |
25,974 |
28,037 |
Profit Before Tax (FRS 3) |
|
|
11,537 |
12,545 |
13,741 |
19,617 |
21,993 |
23,796 |
25,728 |
Profit Before Tax (company) |
|
|
12,642 |
13,300 |
14,801 |
20,919 |
21,993 |
23,796 |
25,728 |
Tax |
(2,284) |
(2,673) |
(2,896) |
(4,469) |
(4,698) |
(5,354) |
(6,046) |
||
Profit After Tax (norm) |
11,392 |
11,263 |
12,762 |
18,090 |
19,352 |
20,619 |
21,991 |
||
Profit After Tax (FRS 3) |
9,253 |
9,872 |
10,845 |
15,148 |
17,294 |
18,442 |
19,682 |
||
Discontinued operations |
2,976 |
(1,084) |
0 |
0 |
0 |
0 |
0 |
||
Average Number of Shares Outstanding (m) |
56.8 |
59.1 |
59.8 |
60.1 |
60.1 |
60.1 |
60.1 |
||
EPS - normalised (p) |
|
|
20.1 |
19.0 |
21.3 |
30.1 |
32.2 |
34.3 |
36.6 |
EPS - adjusted (p) |
|
|
18.0 |
17.8 |
19.7 |
27.1 |
28.8 |
30.7 |
32.7 |
EPS - (IFRS) (p) |
|
|
16.3 |
16.7 |
18.1 |
25.2 |
28.8 |
30.7 |
32.7 |
Dividend per share (p) |
5.1 |
5.5 |
6.0 |
7.5 |
8.0 |
8.5 |
9.1 |
||
Gross Margin (%) |
24.7 |
25.4 |
29.2 |
34.0 |
34.0 |
34.3 |
34.6 |
||
EBITDA Margin (%) |
14.8 |
14.0 |
16.4 |
20.0 |
21.5 |
21.6 |
21.8 |
||
Operating Margin (before GW and except.) (%) |
13.5 |
12.6 |
14.7 |
18.6 |
17.8 |
18.1 |
18.4 |
||
Operating Margin (%) |
12.4 |
12.0 |
13.8 |
17.2 |
16.3 |
16.6 |
16.9 |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
21,863 |
31,730 |
54,048 |
65,811 |
64,776 |
66,843 |
69,018 |
Intangible Assets |
752 |
845 |
1,358 |
2,424 |
2,345 |
2,278 |
2,221 |
||
Tangible Assets |
20,038 |
29,485 |
50,159 |
61,039 |
61,639 |
63,774 |
66,005 |
||
Investments |
1,073 |
1,400 |
2,531 |
2,348 |
792 |
792 |
792 |
||
Current Assets |
|
|
102,401 |
98,158 |
69,472 |
83,606 |
86,748 |
96,328 |
111,470 |
Stocks |
39,642 |
36,799 |
36,050 |
47,263 |
51,011 |
53,785 |
56,709 |
||
Debtors |
28,828 |
23,020 |
24,167 |
26,371 |
28,478 |
30,043 |
31,694 |
||
Cash |
32,304 |
37,187 |
7,739 |
7,260 |
7,260 |
12,499 |
23,067 |
||
Other |
1,627 |
1,152 |
1,516 |
2,712 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(35,781) |
(28,905) |
(15,989) |
(30,460) |
(24,209) |
(21,639) |
(22,135) |
Creditors |
(16,479) |
(11,784) |
(12,640) |
(17,620) |
(20,987) |
(21,496) |
(21,992) |
||
Short term borrowings |
(19,244) |
(16,860) |
(3,203) |
(12,697) |
(3,079) |
0 |
0 |
||
Provisions |
(58) |
(261) |
(146) |
(143) |
(143) |
(143) |
(143) |
||
Long Term Liabilities |
|
|
(6,858) |
(13,876) |
(16,411) |
(11,605) |
(11,521) |
(9,981) |
(9,981) |
Long term borrowings |
(3,001) |
(4,369) |
(3,450) |
(2,624) |
(1,540) |
0 |
0 |
||
Other long term liabilities |
(3,857) |
(9,507) |
(12,961) |
(8,981) |
(9,981) |
(9,981) |
(9,981) |
||
Net Assets |
|
|
81,625 |
87,107 |
91,120 |
107,352 |
115,794 |
131,551 |
148,371 |
CASH FLOW |
|||||||||
Operating Cash Flow |
|
|
3,580 |
20,544 |
15,677 |
13,892 |
26,508 |
27,119 |
28,916 |
Net Interest |
(609) |
(199) |
(191) |
(270) |
(21) |
33 |
84 |
||
Tax |
(2,978) |
(2,208) |
(2,191) |
(4,874) |
(4,698) |
(5,354) |
(6,046) |
||
Capex |
(6,190) |
(10,392) |
(23,909) |
(13,195) |
(5,523) |
(7,145) |
(7,273) |
||
Acquisitions/disposals |
8,357 |
855 |
(1,041) |
(1,178) |
0 |
0 |
0 |
||
Financing |
21,090 |
622 |
(69) |
(212) |
0 |
0 |
0 |
||
Dividends |
(2,876) |
(3,080) |
(3,378) |
(3,704) |
(4,509) |
(4,795) |
(5,113) |
||
Net Cash Flow |
20,374 |
6,142 |
(15,102) |
(9,541) |
11,756 |
9,858 |
10,567 |
||
Opening net debt/(cash) |
|
|
10,225 |
(10,059) |
(15,958) |
(427) |
9,114 |
(2,641) |
(12,499) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
(90) |
(243) |
(429) |
(0) |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(10,059) |
(15,958) |
(427) |
9,114 |
(2,641) |
(12,499) |
(23,067) |
Source: Edison Investment Research, company data
|
|
Research: TMT
WANdisco’s (WAND’s) Q122 trading update demonstrated that the momentum we reported on earlier this year has continued, with bookings and remaining performance obligations (RPO) up significantly to $5.8m (+427% y-o-y) and $14m (+233% y-o-y), respectively. Deals were won across a range of industries and use cases, with computer hardware, telecoms, insurance, and IoT and multi-cloud being key. The company’s momentum is in line with our expectation that as WAND continues its transition to a consumption-based model, it should generate more predictable revenues. This is shown by the recent growth in RPO (up 49% from Q421’s $9.4m), which measures deferred revenue plus unbilled committed contractual revenues. Our estimates for FY22 may be conservative, especially if WAND continues to build on its momentum, but we leave our forecasts unchanged pending the FY21 results announcement.
Get access to the very latest content matched to your personal investment style.