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’s clean-label innovations continue to resonate with consumer demand for better-for-you/natural products, as consumers continue to look for premium beverage propositions with positive health connections. Although Treatt’s citrus segment represented 54% of total revenue in FY19, and citrus pricing was down significantly, the company’s strategic shift over time to a more diversified range of value-added products that are less correlated to external market movements served as a mitigating factor.
The UK relocation continues, with occupancy scheduled for fiscal Q420. In addition to increased capacity, the UK relocation should also accelerate Treatt’s partnershipbased model with customers, hence allowing enhanced profitability. FY19 witnessed the completion of the US expansion, which occurred on budget and on schedule. The capacity in non-citrus was doubled, while the size of the technical and innovation centre was quadrupled.
We value Treatt using a DCF model, which indicates a fair value of 530p, unchanged since our note released with October’s trading update. On a calendarised basis Treatt trades at 22.7x FY20e P/E and 14.9x FY20e EV/EBITDA. On both P/E and EV/EBITDA multiples it trades at a c 10% discount to its peer group.