Full of zest: why these shares can bear fruit
TREATT makes ingredients that add flavour and fragrance to food, drinks and toiletries. Controlled by a single family for nearly a century, the firm has emerged from its shell and is keen to expand at home and abroad. The shares are 158½p and should go far.
Treatt’s ingredients go into products from craft beer to yogurt and scented soap to hypoallergenic perfume.
In 1886, essential oils trader Richard Court Treatt founded the business in Bond Street, Central London, and it soon developed links around the world, importing lavender oil from Spain, clove oil from Zanzibar, bitter orange oil from East Africa and cinnamon leaf oil from the Seychelles.
The firm then moved from trading oils to blending and distilling them, working with a range of other ingredients, such as low-calorie sweeteners.
Some of its products are natural, some are produced with additives to create smoky flavours or particular aromas. In every case, however, Treatt has developed a way of making its flavours and fragrances taste and smell the same, even though the raw ingredients – citrus fruit, nuts, flowers – vary naturally from season to season.
This is vital for food, drinks and cosmetics makers, and Treatt’s customers include many of the largest consumer goods groups, such as Nestle and drinks giant Diageo. The group is now based in Bury St Edmunds, Suffolk, but it works with companies in 70 countries and has offices and production sites in China, the US and Kenya.
Though the firm still bears the name of its founder, the family which most influenced the business were the Bovills, who took a seat on the board in 1924 and remained the largest single shareholder until they sold their 29 per cent stake last summer.
The firm is now chaired by social enterprise guru Tim Jones, who was behind the appointment of Daemmon Reeve as boss when the Bovills bowed out. Reeve has worked at Treatt for 20 years, most recently running the US division, where he increased profits by 250 per cent over three years.
Shareholders hope he can repeat this performance across the group. During the Bovill era, the company was run more like a family business than a listed firm, even though it joined the London Stock Exchange in 1989.
Reeve aims to develop closer relationships with large, global customers, particularly in fast-growing areas such as flavoured vodkas, speciality beers, iced tea and low-calorie food.
Early signs are encouraging. Last month the group unveiled a 39 per cent increase in half-year pre-tax profit to £2.8million on turnover up 11 per cent to £37.1 million.
Brokers expect full-year profits to rise 8 per cent year-on-year to £7million or more for the 12 months to this September, with turnover rising 5.5 per cent to £78.5 million and the dividend rising nearly 11 per cent to 4.1p.
The cost of some raw materials, particularly citrus oil, has risen sharply this year after poor lemon and lime harvests in Central and South America. As these are key ingredients, this puts pressure on profit margins.
Fortunately, the firm has many suppliers to offset the impact of seasonal volatility. Reeve has also put far more emphasis on cost efficiency than previous management, which is helping to improve earnings.
Midas verdict: Treatt is at the start of a new strategy to deepen relationships with big customers, develop innovative products and keep costs down. The firm is neatly positioned to respond to consumer enthusiasm for natural, healthy ingredients in food, drink and cosmetics and Reeve is determined to show his mettle. Buy.