Treatt has posted yet another year of excellent growth, with revenues up 25% and adjusted PBT up c 45%. The company has reached its FY20 financial objectives three years early, and the management has therefore updated its strategy to take the company through to the next phase. A new facility is being built in the UK, and the US site is being expanded. Both projects are on track and Treatt has now announced a share placing to fund these projects. This was always flagged as a possibility. We update our forecasts to reflect the FY17 results and the share placement. Our fair value is 515p (from 522p previously).
Manufacturing ingredients that enhance the flavour and fragrance of products has proven a nicely profitable niche for Treatt (LSE:TET). The shares are up 63% over the last year after a string of upgrades to forecast earnings buoyed investor sentiment.
The shares now trade on a P/E of 17, but I believe the company's ambitious growth plans and solid track record justifies this valuation. The company grew revenues by 24.5% in 2017, with profit jumping 55% to £12.9m, driven by strong growth across all of the group's categories.
Treatt has had yet another outstanding year, continuously exceeding expectations and meeting its 2020 strategic objectives three years early. The board has already approved a plan to drive the business through to 2022 that seeks to build on this success. We raise our EPS forecasts by 3% in FY17 to reflect the strong performance, though our FY18 and FY19 EPS estimates fall by 1-7% due to higher interest costs. Our DCF-derived fair value increases to 522p from 438p, which represents c 10% upside.
Treatt said it has continued to perform strongly in the second half of the financial year and expects to report profit before tax and exceptional items comfortably in line with its recently-upgraded expectations.
The relatively stronger US dollar against the British pound has also had a positive impact on the group's results.