London, UK, 19 May 2021

Treatt (TET): Sweet upgrades

Treatt has once again demonstrated the strength of its business model, with another excellent set of results, and yet another upgrade to guidance. The performance continues to be testament to the management and culture of the business, which has been transformed under CEO Daemmon Reeve's nine years at the helm. Both sales and profit performance are impressive, and we once again raise our forecasts, as the 'healthier' categories continue to outperform. The relocation of the UK business is under way, and we expect the business to continue to perform well once the new UK capacity comes on stream.

Treatt trades at 40.7x and 28.1x FY21 P/E and EV/EBITDA, representing premiums of c 30% and c 40% respectively to its peers. We note that the current share price is discounting medium-term sales growth of 5.0%, falling to 2.5% in perpetuity, with a WACC of 5.7% and a terminal EBIT margin of 20.0%. We forecast net debt at end FY21, moving to a net cash position thereafter, and hence expect a significant uplift in the dividend in FY21.

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