Tate & Lyle - not so sweet

The removal of quotas has the potential to see global supply rise and thus push down prices. Not only this, but group sales were 3 per cent down in constant currency in the 2015-16 financial year, reflecting the pass-through of lower corn prices. In the past year, corn prices have fallen roughly 18 per cent.

In a bid to diversify, management has outlined plans to enhance Tate's speciality food ingredients business, which it sees as its long-term growth driver. The aim is that the division will contribute 70 per cent of group profits, but in 2015-16 its progress was marginal, taking the share to just 60 per cent. This means significant growth will be needed in the next few years and a delay in achieving this goal could put pressure on the share price. Management also wants 30 per cent of sales to come from emerging markets. Yet this only stood at 21 per cent in 2015-16; again, some serious growth needs to be achieved.

While its Splenda sucralose business, which sits within the speciality foods division, has been reconfigured in a bid to improve a downward trend, the outlook still isn't upbeat. In May, Tate's bosses said they still expected a double-digit percentage decline in volumes for the current financial year because "industry capacity remains well in excess of demand and we expect this will lead to continued pricing pressure". That was disappointing because the rate of decline in Splenda's selling prices had slowed and costs had been reduced by closing the Singapore facility and bringing all manufacturing to the Alabama site.

The company registers a third of its speciality food division's sales in the US, but even the translation of the accounts into the now-weaker sterling isn't all good news. True, it helps profits and management says that every 1 cent rise in the dollar's sterling value adds £1.3m to pre-tax profits. Yet it also adds to the group's net debt in sterling.

An important attraction of the shares is the dividend. True, some City analysts reckon that the payout, which generates a 3.8 per cent yield, is sustainable. Yet dividend cover is tight. For the current financial year it is forecast to be 1.4 times (see table), which is much less than the average for the FTSE 250 index of which Tate's shares are a component. Meanwhile, in 2015-16, Tate's free cash generation covered barely more than half the dividend's £130m cost.

Not that these factors have prevented four of Tate's directors from buying shares in the company recently. These include chief executive Javed Ahmed, who bought £200,000-worth of shares earlier this month, and recently appointed non-executive director Lars Frederiksen, who bought £105,000-worth in July.