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Treatt looking to build on new avenues opened up by coronavirus

Cleaning products are offering a new opportunity for the Suffolk-based group

Treatt  plc -
Oranges are not the only fruit for Treatt but are pretty important

A few companies have seen their share price hit a new high this year.

Many are small biotech companies developing tests or treatments for coronavirus (COVID-19).

Nestling within the list, though, is the FTSE All-Share listed flavourings group Treatt PLC (LON:TET), which now has a market value of around £320mln (at 542p),

What makes Treatt’s rise all the more noteworthy is that many of its traditional markets and customers have been severely disrupted by the virus and the measures taken to contain it.

Daemmon Reeve, the group’s chief executive, believes the group is now well- positioned to benefit both from a recovery in its core business and also from new growth avenues that have opened due to the impact of the virus.

 

Treatt’s business is built around oranges and other citrus fruit flavours such as lemon and lime, which are used in soft drinks, speciality teas and beers to add a touch of zing.

This side of the business had been growing strongly ahead of coronavirus but on-sales and hospitality in the US are a big market for the group and only now are some US states coming out of lockdown.

China, too, is a key area market for the group and here the business was affected early by the start of virus and the restrictions imposed.

Reeve believes, though, that due to the lockdowns consumer spending has gone through one of the biggest changes ever seen and in the longer term this spells only good news for the business.

For example, as lockdown restrictions ease and the emphasis switches to safety and cleanliness, Treatt has seen a big uptick in demand for fragrances from detergent and hand soap makers, not traditionally large markets for the group.

As more economies reopen, Reeve can see demand rising even more as cleaning protocols become more rigorous and manufacturers try to differentiate their products.

Beverage customers to regroup

That is likely to coincide with its traditional beverage customers re-starting operations and trying to recoup some of the ground lost due to the pandemic.

There has been evidence of this already in China, he says, where having been through what he calls the ‘hibernation cycle’ caused by the virus, demand is ramping up rapidly again.

A recovery in the price of oranges, where low prices hit the business there, is adding to the recovery impetus.

Trading still accounts for around half of revenues, but over the past decade the emphasis has been to move up the value chain with more sophisticated ingredients in areas such as tea, health & wellness and the fruit & vegetables categories

Reeve says there remains uncertainty and caution from customers in some areas, such as new product development, but he is encouraged by order levels and current demand across its range from beverages through to cleaning.

The group underlined its confidence in April when it raised its dividend by 8% alongside interim results that showed underlying profits of £6.1mln (£6.2mln) on revenues of £53.6mln (£56.6mln).

Reeve adds that Treatt is also preparing for a substantial pick-up in business over the longer-term.

An expansion of its facility in the citrus belt in Florida has doubled capacity there, while work is underway on a new custom-built plant at its UK home in Bury St Edmunds.

The schedule is to move next year. There has been some disruption due to building restrictions, but Reeve says it is a once in-a-generation opportunity for the company.

With its interim results, Treatt said it was on track to meet expectations for the full year, but there might be scope to build on that in the current environment.

Client retention is the focus currently, but if opportunities arise due to supply chain disruption or to bulk up its presence in hand soaps or cleaning Treatt would be interested, adds Reeves.

 

Quick facts: Treatt plc

Price: 504 GBX

LSE:TET
Market: LSE
Market Cap: £303.26 m
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