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Treatt looks sweet, but expensive

The shift away from sugar sweetened Treatt's half-year results but pushed valuations to all-time high
May 9, 2017

The surge in Treatt's (TET) half-year revenues reflects favourable currency translations and the continuing consumer shift away from added sugar in foodstuffs. The fragrance and flavour ingredient producer has helped beverage makers respond to pressure from health-conscious consumers to cut the amount of sugar used in their products through its essential oil-based flavour substitutes. The top line has benefited from this trend, but margins have also strengthened appreciably, so it now looks likely that Treatt will meet its £12.5m annual profit target three years ahead of its 2020 schedule.

IC TIP: Hold at 411p

Treatt committed £1.47m to subsidiary investments, along with plant and equipment, and is in the process of relocating its UK headquarters to a more streamlined building in Suffolk. But, despite the building move and plans to expand capacity in the US, analysts expect Treatt to trim down its debt in the second half, which jumped from £1.7m to £8m over the period. Inventories were up a third since its year-end, although chief executive Daemmon Reeve explained that since consumers tend to drink more beverages in the summer, inventories in the first half of its financial year tend to be high, then fall dramatically in the latter half.

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