Treatt has performed well during FY20 despite the pandemic. There was strong momentum across the tea, health & wellness, and fruit & vegetables categories, and citrus markets recovered as expected. The strong growth across the non-citrus segments is resulting in a slightly reduced dependence on citrus (now 50% of sales). The UK relocation was slowed down as a result of the first lockdown, but the building work is now complete and the move will begin in mid-2021. While management report a strong start to the new financial year, the outlook is understandably uncertain: demand is not expected to return to normal levels before the end of FY21 or into FY22, though management is confident the business is in the best possible shape to face the uncertainty. The FY20 results demonstrate this, with a good cash performance and a 9% increase in dividends implying management’s confidence in the year ahead.
Companies: Treatt plc
Treatt has had another successful year, and the COVID-19 pandemic so far has not materially affected trading performance. The sharp fall in citrus prices has had an impact on revenue growth, which is down 3% at constant currency for FY20. However, profit performance was strong as there was good growth in the other parts of the business, with health & wellness and fruit & vegetables posting double-digit revenue growth, and with the higher-margin parts of the business continuing to outperform. The UK relocation project continues, with construction nearing completion and a move to the new site expected in spring 2021, and the outlook for FY21 is cautiously optimistic. Our fair value increases to 670p (from 560p).
Treatt demonstrated its strength and resilience in H120, as so far the COVID-19 pandemic has not had any adverse impact on trading performance. Of course, this is in part due to the categories in which Treatt operates, with some of its products being used in household cleaners, which have witnessed a global spike in demand. Nevertheless, the steady performance is testament to the management and culture of the business, which have been able to withstand the unexpected and exogenous shock. H219 and H120 were affected by a global weakness in citrus raw material prices, which in turn affected revenue growth. Citrus prices have now started to firm and we expect growth in this category to return in H2. We leave our forecasts mostly unchanged but roll forward our DCF and hence our fair value rises to 560p (from 530p previously).
Treatt has had another successful half year, and the COVID-19 pandemic has, to date, had no adverse effect on the business. As previously stated, the sharp fall in citrus prices during FY19 has continued into H120, hence H1 revenue is down 5.6% at constant currency. There was good growth in the other parts of the business, with tea and health & wellness as the standout performers. Building work on the new UK site has slowed due to the COVID-19 pandemic, and at this stage guidance is for relocation to be in 2021, ie a c three- to six-month delay vs previous guidance of Q420. Our forecasts and fair value remain unchanged at 530p.
Treatt’s FY19 results are testament to the resilience of the business: despite a 10% revenue decline in the citrus segment – caused by a sharp fall in citrus input prices – 16% growth in Treatt’s broadened portfolio of non-citrus revenues resulted in overall reported revenue up 0.5% (-2% at constant currency), in line with our estimates. The key non-citrus categories of tea, health & wellness and fruit & vegetables continue to perform exceptionally well and the company has recently entered the coffee space, which is expected to provide further growth opportunities. Management’s outlook for FY20 is positive, despite citrus pricing continuing to show weakness. Our fair value remains unchanged at 530p.
Treatt has had another successful year: notwithstanding the decline in citrus prices, revenues were up 0.5%, or down 2% at constant currency. This demonstrates the transformation that has occurred at the company over the last few years, from a commodity trading house to a provider of value-added, technical flavour and fragrance solutions. While orange oil prices were down 50% and revenue from the citrus category was down 10%, Treatt’s broadened portfolio was able to withstand the decline by registering significant growth elsewhere, notably in tea, health & wellness and fruit & vegetables. Management’s outlook for FY20 is positive, despite citrus pricing continuing to have an adverse effect.
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Treatt continues its transformation from a trading house to a provider of value-added, technical flavour and fragrance solutions. Its core categories of citrus, tea and sugar reduction continue to drive profit growth. After several years of raw material price inflation, the company is experiencing some falling prices, particularly in citrus. Citrus is Treatt’s historical area of strength and expertise: it represents c 50% of company revenues and the company has demonstrated longstanding skills in managing input prices over many decades. Raw material prices are cyclical, and whilst raw material price deflation tends to result in softer pricing, it does not necessarily cause a fall in profits. We leave our forecasts broadly unchanged and believe the current share price offers a good entry point considering our fair value of 517p (unchanged).
Treatt has delivered another period of strong revenue and profit growth, demonstrating its transformation from a trading house to a provider of value-added, technical flavour and fragrance solutions. Its key categories of citrus, tea and sugar-reduction continue to drive profit growth. After a few years of increasing raw material costs, Treatt is experiencing some falling prices, particularly in citrus. Citrus represents c 50% of company revenues – and Treatt’s historical area of expertise – and falling raw material prices tend to result in selling price deflation. Crucially, they do not necessarily result in a fall in profits, as due to timing of contracts, the fall in raw material costs is not always fully passed onto customers. We trim our FY19 and FY20 sales forecasts in light of raw material deflation, but we leave our profit forecasts broadly unchanged. Our fair value moves to 517p (from 510p) as we roll forward our DCF to commence in 2020.
The last few years have seen Treatt grow at a spectacular rate, and although – as expected – the growth has moderated, it demonstrates that momentum persists in the business, and management has continued to build on prior growth despite the demanding comparatives. Revenues were up by 7% in H119, or 5% at constant currency, vs revenues up 10% in H118. The key categories of fruit and vegetables, tea and sugar-reduction continue to drive the business. Citrus remains the largest category, though at present it is witnessing some weakness due to lower raw material prices. Nevertheless, the rest of the business continues to grow, and management’s outlook for FY19 remains unchanged.
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Treatt has reported yet another set of strong results in FY18. The company remains in the sweet spot of current consumer trends, with ingredients that help to deliver better-for-you products with clean labels and without compromising on taste. The US expansion is on track and on budget, and will be fully operational in H119. The UK relocation is progressing well, although it is more complex and the timetable has slipped by about six months. FY19 has started well, and at this stage we leave our estimates broadly unchanged. Our DCF-derived fair value remains 510p.
The FY18 trading update confirms that momentum continues to drive Treatt’s business. Following the exceptional results posted throughout FY17, Treatt witnessed like-for-like revenue growth of 10% in H118, and 9% for FY18, suggesting some deceleration in H2. Growth remains broad-based, with all core categories contributing, and demonstrating that the business is well-placed to capitalise on current trends in the food and beverage space. Management’s outlook and expectations for the year remain unchanged, but we trim our forecasts to reflect gross margin headwinds.
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