Shanghai Expansion And Health Trends Will Drive A Stronger Long Term Outlook

Catalysts

About Treatt

Treatt supplies natural ingredients to global food and beverage customers, combining science and creativity to help them develop great tasting products.

What are the underlying business or industry changes driving this perspective?

• The opening of the Shanghai commercial and innovation center, together with a focused China division led by an experienced local leader, positions Treatt closer to a large pool of multinational and domestic beverage formulators. This can support higher volumes and improve revenue from Asia over time.
• The distribution agreement with IMCD across Southeast Asia gives Treatt immediate reach into six additional countries. This can widen the customer base without heavy fixed cost build out and, over time, support operating leverage and earnings.
• New powdered citrus extracts and more price stable citrus solutions extend Treatt's heritage expertise into formats suited to sports nutrition, supplements and powdered drinks. This can broaden end uses for existing know how and support mix improvement and gross margin.
• Exposure to health and wellness and sugar reduction solutions, including a recent sugar reduction win, ties Treatt directly to long running consumer preferences for healthier beverages. This can support premium product adoption and higher net margins if customers trade up to more value added ingredients.
• The refreshed Treatt brand, expanded digital access to the portfolio and 136 new customer additions show that the commercial engine is reaching more formulators. This can help convert the current pipeline into incremental revenue and contribute to profit before tax over time.

Assumptions

This narrative explores a more optimistic perspective on Treatt compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Treatt's revenue will grow by 1.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 7.8% today to 5.4% in 3 years time.
• The bullish analysts expect earnings to reach £8.2 million (and earnings per share of £0.14) by about January 2029, down from £11.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 46.6x on those 2029 earnings, up from 11.5x today. This future PE is greater than the current PE for the GB Chemicals industry at 21.8x.
• The bullish analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.54%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Citrus remains at the core of Treatt's heritage portfolio and 2025 results were hit by sustained high citrus raw material costs, customer reformulation delays and substitution. If citrus price volatility persists or recurs over the long term, customers may keep reducing citrus usage or trading down, which would pressure revenue and gross margin.
• Premium categories such as health and wellness, fruit and vegetables and tea are positioned as mix and margin drivers, yet 2025 saw a 13% reduction in premium sales driven by softer North American consumer demand for higher priced products. If premium end markets stay weak or prove more cyclical than expected, the company could face a structurally less profitable sales mix and lower net margins and earnings.
• The growth thesis leans heavily on China and wider APAC, with expectations for China to return to growth and a healthy pipeline, but coffee is still nascent and new products like powdered citrus extracts are only due in the first half of 2026. If local consumer trends or competition limit adoption, the anticipated scale benefits in Asia may not materialise, holding back revenue and profit before tax.
• Long-term reliance on self help cost savings, tighter discretionary spend and capital discipline, including a £5m share buyback and £10m returned to shareholders, may restrict future investment capacity if external headwinds persist. This could weaken Treatt's ability to support new categories and customer wins and in turn constrain revenue growth and earnings.

• The presence of Döhler as a 28% shareholder, as well as a customer and supplier, creates long-term concentration and governance risk. Any change in that relationship or a shift in commercial terms, even under an arm's length agreement, could affect volumes, pricing power and ultimately Treatt's revenue and net margins.
• Leadership transition remains a factor, with interim roles in the CEO and CFO positions and ongoing searches for permanent appointments. If leadership changes disrupt execution or alter priorities over time, it could slow the conversion of the current pipeline into sales and weigh on revenue and earnings.
• The business model targets long-term partnerships and a local for local service approach that depends on 350 colleagues across the U.K., U.S. and China. If wage inflation, talent retention issues or cultural misalignment increase structural costs faster than revenue, the company may face persistent pressure on operating margin and profit before tax.
• The failed cash offer from Natara Global highlighted perceived underlying asset value, but also signals that some shareholders did not support the proposed deal. Continued share price volatility or renewed corporate interest over time could distract management focus from execution, which may impact the consistency of revenue, gross margin and earnings delivery.
• Guidance for FY '26 frames the year as one of stabilization, with an aim to return to revenue growth and stable gross margin. This means the investment case leans on a gradual recovery rather than strong expansion, so any prolonged softness in consumer demand or further external shocks could leave revenue and profit before tax below what growth focused investors might be expecting.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Treatt is £5.05, which represents up to two standard deviations above the consensus price target of £2.8. This valuation is based on what can be assumed as the expectations of Treatt's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £5.54, and the most bearish reporting a price target of just £2.2.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be £151.8 million, earnings will come to £8.2 million, and it would be trading on a PE ratio of 46.6x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of £2.19, the analyst price target of £5.05 is 56.6% higher. Despite analysts expecting the underlying business to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.