Currency in GBP
Last close As at 30/01/2023
GBP6.27
▲ −1.00 (−0.16%)
Market capitalisation
GBP377m
Research: Consumer
As has become customary, Treatt has once again made a good start to the financial year and grown across multiple categories. This year’s adjusted PBT is likely to revert to a more normal H1/H2 weighting, as previously indicated by the company. This comes against a backdrop of an unusually strong H1 in the prior year. The move to the UK headquarters is progressing as planned. We leave our estimates unchanged at this early stage in the year, but note the board’s confident outlook.
Treatt |
Strong start |
AGM statement |
Food & beverages |
28 January 2022 |
Share price performance
Business description
Next events
Analysts
Treatt is a research client of Edison Investment Research Limited |
As has become customary, Treatt has once again made a good start to the financial year and grown across multiple categories. This year’s adjusted PBT is likely to revert to a more normal H1/H2 weighting, as previously indicated by the company. This comes against a backdrop of an unusually strong H1 in the prior year. The move to the UK headquarters is progressing as planned. We leave our estimates unchanged at this early stage in the year, but note the board’s confident outlook.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
09/20 |
109.0 |
15.8 |
21.3 |
6.0 |
51.6 |
0.5 |
09/21 |
124.3 |
22.7 |
30.1 |
7.5 |
36.6 |
0.7 |
09/22e |
131.8 |
24.1 |
32.2 |
8.0 |
34.1 |
0.7 |
09/23e |
139.7 |
26.0 |
34.3 |
8.5 |
32.1 |
0.8 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Strong demand
The demand for flavour ingredients is strong, and the pandemic has resulted in consumers increasingly focusing on health and wellbeing, thus demanding authentic flavours with clean labels. The beverages market has been witnessing a switch from the on-trade to the off-trade channel as restrictions were imposed globally, with a recovery in the on-trade as restrictions were eased. This dynamic has been repeated in several markets as restrictions were reimposed and lifted again, but for the flavour industry the more important metric is overall volume consumed, and Treatt has witnessed an overall increase in demand for its products.
An expert partner
Treatt’s technical expertise is being applied across a growing range of applications, which is leading to both revenue growth and margin expansion. Its portfolio is well-suited for the consumer trends of clean labels and more natural, better-for-you products. Its synthetic aroma business is also growing as demand for sustainable synthetic products is increasing. Treatt has transformed itself from a commodity-based ingredients provider to a trusted and expert partner able to deliver technically complex ingredient solutions.
Valuation: Trading at a premium to peers
We note that the current share price is discounting medium-term sales growth of 4.0%, falling to 2.5% in perpetuity, with a WACC of 5.7% and a terminal EBIT margin of 20.0% (versus 17.2% in FY21). Our earnings estimates remain unchanged following the announcement. Treatt trades at 34.1x FY22e P/E and 22.8x FY22e EV/EBITDA. On both P/E and EV/EBITDA multiples, it trades at a c 20% premium to its peer group, although it trades in line with peers if we exclude those that are more exposed to lower-margin commoditised products.
Valuation
We illustrate Treatt’s relative valuation versus its ingredients peer group in Exhibit 1 below. For 2022, Treatt trades at a c 20% premium to its peer group on both a P/E and EV/EBITDA basis, although 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 1: Comparative valuation
Market cap |
P/E (x) |
EV/EBITDA (x) |
Dividend yield (%) |
|||||
2021e |
2022e |
2021e |
2022e |
2021e |
2022e |
|||
Givaudan |
CHF 37,781 |
39.9 |
37.3 |
27.5 |
26.3 |
1.7 |
1.7 |
|
IFF |
$33,913 |
23.8 |
21.9 |
18.5 |
16.5 |
2.3 |
2.4 |
|
Symrise |
CHF 15,256 |
38.5 |
35.7 |
20.5 |
19.3 |
1.0 |
1.1 |
|
Chr Hansen |
DKK 67,299 |
42.4 |
37.8 |
25.3 |
23.1 |
2.0 |
1.7 |
|
Kerry |
€ 19,632 |
29.1 |
26.5 |
20.0 |
18.7 |
0.9 |
0.9 |
|
Ingredion |
$6,265 |
13.7 |
12.7 |
8.5 |
8.0 |
3.1 |
2.8 |
|
Peer group average |
31.2 |
28.6 |
20.0 |
18.7 |
1.8 |
1.8 |
||
Treatt |
£661.4 |
36.6 |
34.1 |
26.6 |
22.8 |
0.7 |
0.7 |
|
Premium/(discount) to peer group (%) |
17.0% |
19.2% |
32.5% |
22.1% |
(62.4%) |
(59.0%) |
Source: Refinitiv, Edison Investment Research. Note: Prices as of 26 January 2022.
Exhibit 2: Financial summary
£000's |
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 |
131,786 |
139,693 |
148,074 |
Cost of Sales |
(84,407) |
(84,060) |
(77,140) |
(82,103) |
(86,897) |
(91,692) |
(96,749) |
||
Gross Profit |
27,756 |
28,657 |
31,876 |
42,223 |
44,888 |
48,001 |
51,325 |
||
EBITDA |
|
|
16,627 |
15,785 |
17,862 |
24,877 |
29,007 |
30,951 |
32,984 |
Operating Profit (before amort., except and sbp.) |
|
|
15,108 |
14,226 |
16,053 |
23,172 |
24,093 |
25,954 |
27,955 |
Intangible Amortisation |
(124) |
(90) |
(75) |
(93) |
(79) |
(67) |
(57) |
||
Share based payments |
(1,040) |
(637) |
(886) |
(1,733) |
(1,981) |
(2,112) |
(2,253) |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
13,944 |
13,499 |
15,092 |
21,346 |
22,034 |
23,775 |
25,646 |
||
Net Interest |
(1,302) |
(199) |
(291) |
(427) |
(18) |
40 |
92 |
||
Exceptionals |
(1,105) |
(755) |
(1,060) |
(1,302) |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
13,806 |
14,027 |
15,762 |
22,745 |
24,076 |
25,994 |
28,047 |
Profit Before Tax (FRS 3) |
|
|
11,537 |
12,545 |
13,741 |
19,617 |
22,016 |
23,815 |
25,738 |
Profit Before Tax (company) |
|
|
12,642 |
13,300 |
14,801 |
20,919 |
22,016 |
23,815 |
25,738 |
Tax |
(2,284) |
(2,673) |
(2,896) |
(4,469) |
(4,703) |
(5,358) |
(6,048) |
||
Profit After Tax (norm) |
11,392 |
11,263 |
12,762 |
18,090 |
19,372 |
20,635 |
21,999 |
||
Profit After Tax (FRS 3) |
9,253 |
9,872 |
10,845 |
15,148 |
17,313 |
18,457 |
19,689 |
||
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 |
34.1 |
34.4 |
34.7 |
||
EBITDA Margin (%) |
14.8 |
14.0 |
16.4 |
20.0 |
22.0 |
22.2 |
22.3 |
||
Operating Margin (before GW and except.) (%) |
13.5 |
12.6 |
14.7 |
18.6 |
18.3 |
18.6 |
18.9 |
||
Operating Margin (%) |
12.4 |
12.0 |
13.8 |
17.2 |
16.7 |
17.0 |
17.3 |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
21,863 |
31,730 |
54,048 |
65,811 |
64,740 |
66,770 |
68,905 |
Intangible Assets |
752 |
845 |
1,358 |
2,424 |
2,345 |
2,278 |
2,221 |
||
Tangible Assets |
20,038 |
29,485 |
50,159 |
61,039 |
61,603 |
63,700 |
65,892 |
||
Investments |
1,073 |
1,400 |
2,531 |
2,348 |
792 |
792 |
792 |
||
Current Assets |
|
|
102,401 |
98,158 |
69,472 |
83,606 |
84,917 |
95,951 |
111,125 |
Stocks |
39,642 |
36,799 |
36,050 |
47,263 |
49,835 |
52,546 |
55,403 |
||
Debtors |
28,828 |
23,020 |
24,167 |
26,371 |
27,821 |
29,351 |
30,964 |
||
Cash |
32,304 |
37,187 |
7,739 |
7,260 |
7,260 |
14,054 |
24,759 |
||
Other |
1,627 |
1,152 |
1,516 |
2,712 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(35,781) |
(28,905) |
(15,989) |
(30,460) |
(22,794) |
(21,157) |
(21,642) |
Creditors |
(16,479) |
(11,784) |
(12,640) |
(17,620) |
(20,517) |
(21,014) |
(21,499) |
||
Short term borrowings |
(19,244) |
(16,860) |
(3,203) |
(12,697) |
(2,134) |
0 |
0 |
||
Provisions |
(58) |
(261) |
(146) |
(143) |
(143) |
(143) |
(143) |
||
Long Term Liabilities |
|
|
(6,858) |
(13,876) |
(16,411) |
(11,605) |
(11,048) |
(9,981) |
(9,981) |
Long term borrowings |
(3,001) |
(4,369) |
(3,450) |
(2,624) |
(1,067) |
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 |
115,815 |
131,583 |
148,407 |
CASH FLOW |
|||||||||
Operating Cash Flow |
|
|
3,580 |
20,544 |
15,677 |
13,892 |
27,881 |
27,208 |
29,000 |
Net Interest |
(609) |
(199) |
(191) |
(270) |
(18) |
40 |
92 |
||
Tax |
(2,978) |
(2,208) |
(2,191) |
(4,874) |
(4,703) |
(5,358) |
(6,048) |
||
Capex |
(6,190) |
(10,392) |
(23,909) |
(13,195) |
(5,477) |
(7,095) |
(7,221) |
||
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) |
(4,800) |
(5,117) |
||
Net Cash Flow |
20,374 |
6,142 |
(15,102) |
(9,541) |
13,174 |
9,994 |
10,705 |
||
Opening net debt/(cash) |
|
|
10,225 |
(10,059) |
(15,958) |
(427) |
9,114 |
(4,060) |
(14,054) |
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 |
(4,060) |
(14,054) |
(24,759) |
Source: Company data, Edison Investment Research
|
|
Research: TMT
EQS Group has updated on FY21 revenues, at €50.4m against our forecast of €49.4m. There is no update on FY21 EBITDA, but our numbers imply a very modest margin in Q4, given the extent of additional spend on driving sales. This effort is delivering results, with 425 new customers recruited in Q421 alone. Delays in Europe enacting whistleblowing regulation into national legislation have not had the impact feared in the short term and progress on this front should provide a healthy backdrop for the current year. Guidance for FY22 is unchanged, for revenue in the €65–75m bracket, delivering EBITDA of €6–10m. The scale of the opportunity remains considerable.
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