Treatt: What A Treatt!
Edison | Jan 19, 2017 01:56AM ET
Treatt PLC (LON:TET) is steadily transforming itself from a seller of flavour and fragrance-based commodities to a value-added ingredients supplier. The strategy of deep customer knowledge is paying off, leading to stronger relationships, a real competitive advantage and greater profitability, with EBIT margins increasing from 9.6% in 2014 to 10.8% in 2016. Management has delivered four consecutive years of earnings above expectations and the momentum remains strong. Our DCF analysis calculates a fair value of 293p, supported by benchmark analysis that places the stock at a c 30% discount to its peer group.
A winning strategy
Since CEO Daemmon Reeve took over in 2012, Treatt’s culture has changed significantly. The old ‘silo’ mentality has been broken down and replaced by an open, collaborative and customer-focused culture. This has allowed the company to deliver on its strategy of moving up the value chain and delivering sustainable growth in profits in the flavour, fragrance and fast-moving consumer goods (FMCG) markets. During FY16 the performance was broad based, spanning beverages, core flavours and fragrances and personal care. Cash-flow generation continued to be strong and hence net debt now sits at an 11-year low, which will stand the business in good stead ahead of the relocation of the UK head office.
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