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).
