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.
Treatt’s portfolio is well-suited for the current consumer trends of clean labels and more natural, better-for-you products, without compromising on taste. The fact that the organic (constant currency) revenue decrease was only 2%, despite pressure on citrus pricing due to raw materials weakness, demonstrates the strength of the portfolio. The citrus category represented 54% of group revenue and was down 10% in revenue terms, but this was offset by substantial growth in the remaining categories. The non-citrus categories continue to display significant growth potential, and the news in the latest trading statement is that cold brew coffee will be a new market opportunity for Treatt from FY20.
FY19 witnessed the completion of the US expansion, which occurred on budget and on schedule. The capacity in non-citrus was doubled, and the size of the technical and innovation centre was quadrupled. The UK relocation continues, with construction beginning last month, and occupancy scheduled for fiscal Q420.
We value Treatt using a DCF model, which indicates a fair value of 530p (previously 517p). The increase is due to slightly higher profit forecasts and a reduction in our net debt forecasts. Treatt trades at 20.4x FY20e P/E and 14.1x FY20e EV/EBITDA. On both P/E and EV/EBITDA multiples it trades at a c 15% discount to its peer group.