London, UK, 11 July 2022

Treatt (TET): New facility to drive growth

Treatt has performed consistently well over the last few years, as it has moved from a commodity trading house to a partner and provider of advanced ingredients solutions. Following its successful expansion of capacity in the United States, it relocated its UK headquarters and manufacturing capability, with almost all staff now working from the new site. This should mark an inflection point for the business as the new facility is significantly more automated, allowing for greater efficiencies. Treatt is exposed to high-growth categories that are in the sweet spot of consumer preferences, such as sugar reduction, and reported at H122 that its order book is up 25% on last year. We maintain our forecasts and note that, as flagged by management, H2 is expected to witness both higher revenue and higher margins than H1, thus reverting to a more normal H1/H2 seasonal split after two years distorted by the COVID-19 pandemic.

Treatt trades at 23.7x and 16.1x FY22 P/E and EV/EBITDA, representing discounts of c 10% and c 5% respectively to its peers. We note the current share price is discounting medium-term sales growth of 5.7%, falling to 2.0% in perpetuity, with a WACC of 7.7% and a terminal EBIT margin of 20.0%. We forecast net debt at end FY22, moving to a net cash position thereafter.

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