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.
The company is following relevant government guidelines and has implemented appropriate health and safety measures. Its order intake has been strong, as its customers have responded to increased demand for cleaning products and beverages consumed at home. The pandemic, therefore, has so far had no adverse effect on the overall business, with the exception of the above-mentioned delay to the relocation of the UK business. This will help to preserve cash, and the company’s financial position remains extremely comfortable, with current net cash of £6.5m and total bank facilities of £25m, of which £24.9m remains undrawn.
The company continues to successfully embrace the sweet spot in flavour ingredients. Its portfolio is well-suited for the current consumer trends of clean labels and more natural, better-for-you products. The order book and current demand are looking healthy ahead of the peak seasonal period. While citrus prices have continued to be lower than the prior year during H1, they have been recovering and in H2 will start to lap easier comparatives. We therefore continue to expect revenue growth during H2. We note that the non-citrus categories have continued to perform very well, with tea revenues up 47.5%, fruit and vegetables up 9.4% and health and wellness up 19.9% during H1, and we leave our estimates unchanged. This reflects the company’s statement that demand so far has been robust and trading remains in line with the board’s expectations.
We value Treatt using a DCF model, which indicates a fair value of 530p (unchanged). On a calendarised basis, Treatt trades at 25.1x FY20e P/E and 16.5x FY20e EV/EBITDA. On both P/E and EV/EBITDA multiples, it trades in line with its peer group, as it has demonstrated its resilience and defensive qualities.