Tate & Lyle puts in solid half

Tate & Lyle (TATE) has a significantly smaller earnings base after the $1.4bn (£1.1bn) sale in April of its controlling stake in plant-based food producer Primient, which is part of the reason behind the company offering a lower dividend. But despite this, and a weak performance by the joint venture, this was a strong half overall.

Revenue growth was chunky, with food and beverage solutions (FBS) sales up by 30 per cent to £752mn and sucralose sales up by a quarter to £97mn. Cost inflation of a gross £85mn was mitigated, backed up by a quarterly supplemental pricing programme and hedging. And cash profits came in at a quarter above consensus market forecasts.

But while the company is effectively raising prices, the major downside in the half was struggling volumes. These were down by 8 per cent overall, with an 8 per cent fall for FBS including an eye-watering 14 per cent decline in Tate’s European market. Sucralose posted a 9 per cent uplift, the one bright spot for volumes. On the plus side, there were specific factors at play – the company pointed to the impact of “the planned transition of primary products Europe capacity, supply chain challenges and one-off factors” – adding that underlying volumes were up by 2 per cent.

Goldman Sachs analysts, who have a 12-month price target of 900p, said that “it is reassuring to see the earnings delivery being increasingly skewed to the core operations”. The shares trade on an undemanding 13 times the bank’s 2024 earnings forecast, and we remain bullish on the streamlined business after this showing. Buy.

Last IC View: Buy, 757p, 9 Jun 2022