Main menu
Edison Group
  • Home
  • Sparks
  • Equities

    Equities

    View All Equities

    Equities by Sector

    YXT.com

    MCap

    USD127m

    Last close

    USD23.43

    ▲ 20.23 (632.19%)

    Northern Data Group

    MCap

    EUR486m

    Last close

    EUR6.28

    ▲ −1.28 (−16.88%)

    Bodycote

    MCap

    GBP1,572m

    Last close

    GBP9.14

    ▲ −9.00 (−0.98%)

  • Sectors

    Sectors

  • Megatrends

    Megatrends

  • Thematics

    Thematics

    View All Thematics

    Latest

  • Audiovisual

    Audiovisual

    View All Audiovisual

    Latest

Treatt — Update 30 November 2016

Treatt (LSE: TET)

Last close As at 06/08/2026

—

— 0.00 (0.00%)

Market capitalisation

—

More on this equity

Research: Consumer

Treatt — Update 30 November 2016

Treatt

Analyst avatar placeholder

Written by

Consumer

Treatt

Staying sweet

FY16 results

Food & beverages

30 November 2016

Price

258.0p

Market cap

£134m

Net debt (£m) as at 30 September

1.7

Shares in issue

52.1m

Free float

100%

Code

TET

Primary exchange

LSE

Secondary exchange

NA

Share price performance

%

1m

3m

12m

Abs

18.6

41.4

58.3

Rel (local)

22.0

43.0

50.0

52-week high/low

267.00p

161.00p

Business description

Treatt provides innovative ingredient solutions from its manufacturing bases in Europe, North America and Africa, principally for the flavours and fragrance industries and multinational consumer goods companies with particular emphasis on the beverage sector.

Next events

H1 17 trading statement

March 2017

H1 17 results

9 May 2017

Analysts

Sara Welford

+44 (0) 20 3077 5700

Paul Hickman

+44 (0)20 3681 2501

Treatt is a research client of Edison Investment Research Limited

Results have yet again beaten our forecasts and the management has now delivered the fourth consecutive year of earnings above expectations. The share price is up 41% over the last three months, and Treatt is steadily moving from commoditised sales to more value-added products. Its strategy of deep customer relationships is paying off, giving it a real competitive advantage and improving margins. The year finished strongly and momentum is due to continue in the traditionally seasonally weaker Q117. Our P&L forecasts are broadly maintained, but our fair value moves to 272p (from 240p) as a result of stronger cash flow.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

09/15

85.9

8.3

12.7

4.0

20.8

1.5

09/16

88.0

9.6

14.3

4.4

18.5

1.6

09/17e

92.4

10.3

15.2

4.6

17.4

1.7

09/18e

96.1

10.6

15.7

4.7

16.8

1.8

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

From strength to strength

FY16 sales were in line and operating profit was 3% above our forecasts, but this was despite a net FX loss during the year. We expect the strong momentum from Q4 to continue into Q1 (which is usually seasonally weaker) and contribute towards further margin improvement. We leave our forecasts broadly unchanged, but see potential for upside given management’s conservative track record.

Clear focus

Treatt outlined its new strategy towards the end of FY15, and it was an evolution from the previous three-year plan, being implemented by the same management team. CEO Daemmon Reeve previously reshaped the business to break down the silo mentality, and the goal now is to achieve improved customer focus and closer relationships, with the ultimate aim of moving Treatt away from commoditised trading and concentrating its resources further up the value chain to deliver greater profitability. The results so far are clear, as the business continues to go from strength to strength.

Valuation: Attractive ingredients play

We value Treatt using a DCF model and we derive a fair value of 272p (previously 240p), or c 4% upside to the current share price. The increase in fair value reflects a combination of stronger than expected cash flow and our assumption of slightly lower working capital outflows in future years; albeit allowing for relatively high levels of inventory, which act as a buffer against commodity price movements. Given the relatively high level of working capital, the DCF valuation is sensitive to small movements in our forecast. On a relative valuation, Treatt trades at 17.2x and 11.9x calendar P/E and EV/EBITDA multiples for 2017, representing a c 20% discount to its ingredients peer group on both metrics.

FY16 results

FY sales were up 2.5%, profit before tax was up 11% on an adjusted basis, and adjusted diluted EPS was up 7%. The drive towards higher value-added products helped improve gross margins, and this continues to be an area of focus for the group. Strategically, the main objective is to collaborate ever more closely with its customers, in order to deliver superior solutions and become the supplier of choice, thus leading to long-term, sustainable profit growth. The group has invested in innovation and staff development, and more recently on growing its activities in China, where it sees great potential and hence has increased its capabilities. Net debt continued to fall and stood at £1.7m at the end of FY16. It is likely to increase from here once the UK site relocation goes ahead.

UK site relocation

As announced with the H115 results, Treatt has decided to fully relocate its UK head office and manufacturing plant in the Bury St Edmunds area to a new site nearby. Discussions with landowners are at an advanced stage, and we expect an update within the next few months. We previously forecast £20m total spend on this project, with the majority of the costs in FY17 and FY18. We have now increased this to £28m in total. Part of the increase is due to the expectation that new technologies will be incorporated into the new facility, but there is also an increase due to effectively deferred capex. The company has now guided towards a £3-5m outflow due to capital projects that have been held back over the last three years and that will be implemented once the relocation occurs. Indeed FY16 capex stood at particularly low levels (£0.7m) and reflects the fact that management has sensibly reduced capital expenditure to the minimum possible in view of the imminent relocation.

Valuation

We illustrate Treatt’s valuation versus its ingredients peer group in Exhibit 1 below. Treatt trades at a discount to its ingredients peer group on all metrics.

Exhibit 1: Benchmark valuation

Market cap
(m)

P/E (x)

EV/EBITDA (x)

Dividend yield (%)

2017e

2018e

2017e

2018e

2016e

2017e

Givaudan

CHF18,107

23.6

22.4

15.7

14.9

2.9%

3.2%

IFF

$10,938

22.7

20.3

14.9

13.7

1.7%

1.9%

Symrise

CHF9,145

25.5

23.4

14.3

13.0

1.3%

1.5%

Frutarom

NIS11,705

20.2

18.9

13.9

12.1

0.6%

0.7%

Chr Hansen

DKK51,040

31.5

27.9

20.7

18.7

1.3%

1.5%

Kerry

€12,264

19.6

17.5

14.0

12.2

0.8%

0.9%

Ingredion

$9,580

18.0

16.7

9.7

9.0

1.4%

1.5%

Peer group average

23.0

21.0

14.8

13.4

1.4%

1.6%

Treatt

£136.1

17.2

16.7

11.9

11.3

1.7%

1.8%

Premium/(discount) to peer group (%)

-25.2%

-20.3%

-19.2%

-15.5%

15.9%

9.6%

Source: Bloomberg (prices as of 28 November 2016). Note: Treatt figures are calendarised to aid comparison.

Our DCF-derived fair value moves to 272p (from 240p). This is predicated on a WACC of 8.0% (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%. The increase in fair value is due to stronger than expected cash flow resulting in lower net debt in FY16, and the improved cash flow feeding through into our forecasts and hence slightly lower working capital outflows in future years. The business will still operate with relatively high levels of inventory to guarantee supply and protect itself from commodity price movements, but we see some scope for a small improvement in the metrics.

Exhibit 2: Financial summary

£000s

2013

2014

2015

2016

2017e

2018e

Year-end September

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

74,097

79,189

85,934

88,040

92,442

96,140

Cost of Sales

(56,510)

(61,218)

(66,955)

(67,639)

(72,403)

(75,203)

Gross Profit

17,587

17,971

18,979

20,401

20,039

20,937

EBITDA

 

 

8,360

9,068

10,307

11,604

12,421

13,098

Operating Profit (before amort., except and sbp.)

 

 

7,141

7,846

9,063

10,257

10,880

11,496

Intangible Amortisation

(181)

(172)

(175)

(142)

(160)

(160)

Share based payments

(22)

(46)

(198)

(566)

(652)

(673)

Other

0

0

0

0

0

0

Operating Profit

6,938

7,628

8,690

9,549

10,068

10,663

Net Interest

(651)

(724)

(740)

(703)

(559)

(851)

Exceptionals

(1,153)

(1,402)

(174)

(553)

0

0

Profit Before Tax (norm)

 

 

6,490

7,122

8,323

9,554

10,321

10,645

Profit Before Tax (FRS 3)

 

 

5,134

5,502

7,776

8,293

9,509

9,812

Profit Before Tax (company)

 

 

6,287

6,904

7,950

8,846

9,509

9,812

Tax

(1,655)

(1,553)

(1,786)

(2,144)

(2,425)

(2,502)

Profit After Tax (norm)

4,835

5,326

6,537

7,410

7,896

8,143

Profit After Tax (FRS 3)

3,479

3,949

5,990

6,149

7,084

7,310

Average Number of Shares Outstanding (m)

51.1

51.3

51.5

51.9

51.9

51.9

EPS - normalised (p)

 

 

9.5

10.4

12.7

14.3

15.2

15.7

EPS - normalised & fully diluted (p)

 

 

9.4

10.3

12.6

14.1

15.0

15.5

EPS - (IFRS) (p)

 

 

6.8

7.7

11.6

11.8

13.7

14.1

Dividend per share (p)

3.7

3.8

4.0

4.4

4.6

4.7

Gross Margin (%)

23.7

22.7

22.1

23.2

21.7

21.8

EBITDA Margin (%)

11.3

11.5

12.0

13.2

13.4

13.6

Operating Margin (before GW and except.) (%)

9.6

9.9

10.5

11.7

11.8

12.0

BALANCE SHEET

Fixed Assets

 

 

14,341

13,777

13,381

16,161

22,347

40,027

Intangible Assets

1,759

1,801

1,736

3,364

3,204

3,044

Tangible Assets

11,718

10,994

10,998

11,361

17,707

35,547

Investments

864

982

647

1,436

1,436

1,436

Current Assets

 

 

38,340

43,590

45,045

54,435

49,626

50,437

Stocks

23,669

28,020

25,799

29,990

30,565

30,826

Debtors

13,207

14,509

17,635

17,853

18,561

19,111

Cash

1,117

629

1,477

6,588

500

500

Other

347

432

134

4

0

0

Current Liabilities

 

 

(12,533)

(16,005)

(13,481)

(16,388)

(17,405)

(26,337)

Creditors

(11,962)

(12,729)

(12,675)

(15,834)

(15,223)

(15,832)

Short term borrowings

(522)

(2,356)

(567)

(487)

(2,182)

(10,506)

Provisions

(49)

(920)

(239)

(67)

0

0

Long Term Liabilities

 

 

(12,754)

(12,602)

(11,760)

(17,021)

(10,403)

(14,365)

Long term borrowings

(8,889)

(7,857)

(7,065)

(7,755)

(1,091)

(5,253)

Other long term liabilities

(3,865)

(4,745)

(4,695)

(9,266)

(9,312)

(9,112)

Net Assets

 

 

27,394

28,760

33,185

37,187

44,165

49,762

CASH FLOW

Operating Cash Flow

 

 

9,250

3,528

8,667

10,804

12,010

12,696

Net Interest

(714)

(724)

(740)

(703)

(559)

(851)

Tax

(649)

(1,552)

(1,469)

(2,022)

(2,425)

(2,502)

Capex

(1,433)

(538)

(924)

(679)

(7,887)

(19,442)

Acquisitions/disposals

(154)

(208)

(103)

(861)

0

0

Financing

(56)

105

147

280

0

0

Dividends

(1,585)

(1,899)

(1,978)

(2,095)

(2,257)

(2,386)

Net Cash Flow

4,659

(1,288)

3,600

4,724

(1,118)

(12,486)

Opening net debt/(cash)

 

 

12,949

8,294

9,584

6,155

1,654

2,773

HP finance leases initiated

0

0

0

0

0

0

Other

(4)

(2)

(171)

(223)

(1)0

0

Closing net debt/(cash)

 

 

8,294

9,584

6,155

1,654

2,773

15,259

Source: Edison Investment Research, Treatt data


Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Treatt and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

More on Treatt

View All
Treatt_resized

Consumer

Treatt — Return to growth in FY23
Treatt_resized

Consumer

Treatt — FY23 profits in line despite headwinds

Consumer

Treatt — A strong start to the year

Consumer

Treatt — Strong revenue growth, profit in line

Latest from the Consumer sector

View All Consumer content

Consumer

PZ Cussons — Adjusted operating profit ahead of expectations

Consumer

British American Tobacco — Transformation gathering pace

Consumer

Stock of the month – PZ Cussons

Consumer

Fourlis Holdings — A trusted brand partner

Pointer Telocation — Update 30 November 2016

Pointer Telocation

Continue Reading
Cookie Policy Overview
Edison Group

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping us understand which section of the website you find more interesting and useful. See our Cookie Policy for more information.

Strictly necessary and functional

These cookies are used to deliver our website and content. Strictly necessary cookies relate to our hosting environment, and functional cookies are used to facilitate social logins, social sharing and rich-media content embeds.

Advertising

Advertising Cookies collect information about your browsing habits such as the pages you visit and links you follow. These audience insights are used to make our website more relevant.

Performance

Performance Cookies collect anonymous information designed to help us improve the site and respond to the needs of our audiences. We use this information to make our site faster, more relevant and improve the navigation for all users.