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Great Ideas Update - Treatt
Treatt (TET) 325p
Gain to date: 25.5%
Original entry point: Buy at 258.93p, 16 February 2017
Our ‘buy’ call on flavor and fragrance specialist Treatt (TET) has yielded a sweet 25.5% gain. An excellent trading statement (23 Feb) was the catalyst for another round of earnings upgrades.
Although it is tempting we are resisting the urge to take profits. This high-quality business should continue to deliver healthy organic growth and could enjoy further upward earnings revisions.
The £164.9m cap it expects profits for the year to September to ‘substantially exceed’ previous expectations. Top line momentum has been gathering pace due to new business wins and growth with existing customers, while Treatt is also seeing the beneficial impact from higher product margins as it delivers more enhanced solutions to food ingredient, food and beverage customers.
Encouragingly, order books for the rest of this year and next are ‘materially up’ on a year ago. Paid-for research house Edison has upgraded its full year pre-tax profit estimate by more than 20% to £11.5m-plus, while its year to September 2018 forecast rises by almost 29% to north of £12.6m.
Although Treatt’s prospective PE is approaching 20 times, based on forecast earnings of 16.5p, we’re staying positive given the sales momentum and higher margins. (JC)