Treatt works for me as movements in the share price routinely only occur in any size around RNS newsflow. So I do not find it passing my target price, at which point I sell, only for news to come out afterwards.
Treatt has been going through a revamp in its business model. It has long been a supplier of ingredient solutions, principally in beverages and fragrances. In the last few years it has focused specifically on citrus, tea and sugar reduction.
These have played well into some growth areas;
– Citrus in men’s fragrance and the move away from fizzy sugar drinks
- Tea into the move away from fizzy sugar drinks (iced tea) and the move to delivering faster brewing hot tea. (Today nobody wants to wait 6 minutes for the pot to brew)
- Sugar reduction. Enough said
On the 28th November Treatt released its results for the YE 30th September 2017.
Revenue was up 24.5%. (18.5% on current currency).
Revenue grew UK (16% to £10.3m), South America (97% to £8.2m), North America (26% to £42.6). China (27% to £5.8m), Europe ex UK (15% to ££25.7m), Rest of World (19% to £17.2m). With strong growth in all product areas.
The Gross Margin increased from 23.2% to 24.5%.
So significant success broadly across the board.
But both the UK and US operations are in the near term looking to either relocate or substantially refurbish/expand their physical operations.
Dividends are being increased but only by 10%. This sensibly recognises the planned future capex.
The company also announced a placing at 410p a share to raise £21.6m for the redevelopment of the UK and US sites.
The Company’s PBT has increased 55% to £12.9m
The Company’s PAT has increased 55% to £9.5m
The Company in its own reporting does use “adjusted” numbers. However unlike many companies the amount “adjusted” for is comparatively small and in some cases genuinely extraordinary and one off. (That said I do not agree with all they swing through this pot being ignored in judging their performance).
In my experience of the company management do have a history of saying and then doing. A big plus. The accounts are clear and comprehensive and do not contain aggressive accounting (could be I am missing it).
It is worth noting that the placing is at 410p with the current share price at 478p. (Shares have risen strongly since the placing announcement. Presumably both reflecting the good results and the removal of concerns over the funding of the relocation and new build plans).
Pre placing this gives the Company a NTAV of £43.1m and a market capitalisation of £249m. The initial rationale for purchasing was as a Value Investment as the Mkt Cap was sub £80m with significant brand value unrecognised. At current levels I am not happy that this rationale exists.
However I do feel that it is not unreasonable to hold these under a GARP rationale given the achievements of management over the last few years. That said my revised value is now 520p, though I am reviewing, and at current levels there is not the 20% MoS required to recommend a purchase. I continue to hold.
This update should be considered in light of previous blogs on Treatt. Always DYOR and WDIK.