MIDAS SHARE TIPS UPDATE: Treatt's strategy bears fruit

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Flavour specialist Treatt is another firm that is shifting its product mix from low-margin, commoditised raw materials to more sophisticated and complex goods.

The business makes flavourings and fragrances from natural ingredients, such as citrus oils and tea leaves. These are used primarily in fizzy drinks, iced tea, craft beer and exotic spirits, but also in sweets, cosmetics and cleaning products.

Midas recommended Treatt in May 2014, when the shares were 158½p. A year later, the stock had fallen to 152p but we suggested investors should keep the faith. 

Flavour specialist Treatt makes flavourings and fragrances from natural ingredients, such as citrus oils and tea leaves

Those who did have been amply rewarded as the price is now 330p, following news last month that profits this year would be much higher than expected.

Chief executive Daemmon Reeve has been working hard to move the company from its roots as a trader of essential oils and similar goods to a business that works closely with big food and drink makers, delivering specialised ingredients to enhance flavours, reduce sugar and add appetising aromas.

Last month’s trading statement shows the approach is bearing fruit, with brokers forecasting a 30 per cent profits increase to £11.5 million for the year to September, rising to £12.2 million next year.

The company has an enviable dividend track record – it has never cut the payout since floating 28 years ago. This year, an increase of 8.6 per cent to 5p is expected, rising to 5.2p in 2018.

Midas verdict: Reeve has made great strides over the past three years, but the best may be yet to come. 

The drinks industry spends more than £12 billion annually on low-sugar alternatives and flavourings and Treatt is well positioned to capture a growing piece of that market.

Existing shareholders should hold. New investors could also gain from purchasing some stock.