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Broker tips: Treatt, Tritax Big Box

By Iain Gilbert

Date: Monday 30 Jan 2023

Broker tips: Treatt, Tritax Big Box

(Sharecast News) - Analysts at Berenberg took a fresh look at food chemicals manufacturer Treatt on Monday, stating it was "so far so good" for the group in its current trading year.
Berenberg said Treatt's year-to-date trading update was in line with expectations, something it views as a "positive" in the context of recent earnings misses by larger companies in the ingredients sector.

"There are reasons to be optimistic that Treatt can outperform the market in the near and medium term. Firstly, its well-flagged coffee contract should provide circa 3% of organic growth in FY23. Secondly, its move to its new UK facilities is almost complete, which removes capacity constraints and improves sales opportunities. Finally, we continue to think that growth in natural ingredients will outpace the broader ingredients industry, in line with trends observed over the past three decades," said Berenberg.

"Reported revenue growth of 9% was boosted by an FX tailwind, while underlying volumes were broadly flat versus last year. Q2 and Q3 are more important trading periods for Treatt, and with its sales pipeline in good shape, we think it is well set to deliver on our estimates."

The German bank reiterated its 'buy' rating and 780.0p target price on the stock, highlighting that although Treatt's valuation appears "high on headline multiples", it thinks "investors are well compensated" by a "strong" earnings pipeline.

RBC Capital Markets reiterated its 'overweight' rating and 195.0p target price on Tritax Big Box on Monday following the group's recent trading update.

RBC Capital increased its net asset value per share forecasts by 4-5% to roughly 178.0p for end-2022, compared to a company-compiled consensus range of 168.0p-195.0p.

The Canadian bank also highlighted "positive commentary" around Tritax's occupier markets and its "relatively strong" balance sheet.

"Big Box's share price offers a 5.3% 2023 earnings yield, which we believe is attractive given a high level of visibility over sustained EPS growth over the long-term. We believe capturing current reversion will more than offset the drag from higher financing rates," said RBC.

"Hedged undrawn facilities should also boost the EPS accretion from developments nearterm. Likewise, any decline in the cost of exercising land options."


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