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Take Tate's sweet returns

Food ingredients specialist Tate & Lyle is focusing on a competitive market and its share price looks to have run as far as it should have
January 16, 2013

Since shedding its sugar divisions in 2010, Tate & Lyle (TATE) has aimed to become a global leader in speciality food ingredients. The goal is fine, but achieving it will be tougher, which is why we think Tate's share price has run as far as it should and we are taking the stock off our 'buy' list.

IC TIP: Hold at 763pp

Tate's sales of speciality ingredients such as artificial sweeteners and 'texturants' are increasing and profit margins are strong. So convinced is management of its plan that it has just spent $32m on a food innovation centre in Chicago. True, demand for such products is rising - as emerging markets develop a taste for ready-meals and western populations grow fatter and more diabetic - but Tate is investing heavily in a competitive marketplace saturated by longstanding players such as Cargill and Ingredion.

Much development work is still to be done and it will take 18 months to two years for a new product development pipeline to emerge, followed by a further two years for the products to gain traction. Broker Shore Capital also wonders whether Tate's focus on speciality ingredients is simply bringing it in line with its competitors. Meanwhile, Tate's sales of bulk ingredients, where it is at the mercy of volatile corn prices, still outstrip those of speciality ingredients.