Treatt PLC (LON:TET) 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.
An exceptional year
FY17 has been an impressive year for the company, with three separate upgrades to guidance. The growth rate achieved in FY17 (c 24% revenue growth, as per guidance) will be hard to replicate and should not be considered the new norm, but it does demonstrate the company is successfully embracing the sweet spot in flavour ingredients. Our net debt figures rise as working capital requirements are increasing (due to the impressive sales growth and also an increase in raw material prices). We now forecast £11m at end FY17, in line with guidance of £11-13m. We continue to base our assumptions on the expectation that both the UK relocation and the US expansion costs – which are progressing as planned – will be debt-funded, but acknowledge that management has not ruled out raising equity.
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