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Positive signs for the Tate & Lyle transition

The new core segment of the business demonstrates impressive growth
November 4, 2021

 

  • Cost pass-through in evidence
  • Volume growth in food & beverage solutions

With stocks, it’s often where you’re going rather than where you’ve been. Shares in Tate & Lyle (TATE) were on the rise, despite the release of half-year figures in which statutory profits pulled back sharply due to £41m in cash costs relating to the disposal of its Americas primary products business, together with a £13m asset impairment in the European Primary Products business.

These aren’t so much growing, as transitional pains, as the group moves away from a sucrose-laden legacy in favour of a food business focused on healthy options for consumers. Group chief executive, Nick Hampton, confirmed that the consumer switch to healthier food and beverage alternatives is still in evidence, and that the strategic transformation is on track, with the sale of the group’s controlling stake in its primary products business in the Americas due for completion in the first quarter of 2022.

The food & beverage solutions segment, which is central to the transition, delivered 9 per cent volume growth, with revenues 19 per cent to the good at £578m. Profitability was held in check to a degree due to inflationary pressures, but there is evidence to suggest increases are being successfully passed through to customers. The ability to do so will be a key consideration given the group is targeting a 50-100 basis point increase in the operating margin annually over the next five years.

Tate & Lyle trades at 29 times forecast EPS from Bank of America Securities, although that forward rating virtually halves in FY 2023. So, given the dividend yield on offer and signs that the new core parts of the business are generating volume growth, we move to buy. Buy.

Last IC view: Hold, 644p, 21 May 2020

TATE & LYLE (TATE)   
ORD PRICE:695pMARKET VALUE:£3.25bn
TOUCH:694-696p12-MONTH HIGH:821pLOW: 592p
DIVIDEND YIELD:4.5%PE RATIO:15
NET ASSET VALUE:322p*NET DEBT:22%
Half-year to 30 SeptTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
202059258.028.68.80
202165621.021.99.00
% change+11-64-23+2
Ex-div:25 Nov   
Payment:5 Jan   
*Includes intangible assets of £290m, or 62p a share