Treatt plc - Pedigree and potential

Davy Research
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We expand our coverage of the European Fragrance and Flavour (F&F)/Ingredients sector with an initiation of Treatt Plc. Treatt is an ambitious niche player in the value-add ingredients space (80% of sales) – it majors on natural extracts (citrus, botanicals), primarily serving the global beverage industry (70-75% of sales). Its recent track record of delivery and organic investment is impressive – our forecast model assumes a continuation of trend (9% EBIT CAGR 2020-25f) as a material capacity uplift comes on-stream allied with strong demand for natural extracts. Valuation is the only hindrance to the investment case; Treatt trades on c.40x FY21 EPS. Although we have conviction on operational delivery, we do not anticipate further multiple expansion. We initiate with a ‘Neutral’ rating and remain patient for a more attractive entry point.