Tate & Lyle's joint venture drives bump in profits

Tate & Lyle’s (TATE) management is trying to turn it into “a growth-focused speciality business through a focus on revenue growth and margin expansion, ahead of volume”. This was apparent in the half-year results, with volumes down by 8 per cent at both the food and beverage solutions (FBS) and sucralose divisions, while the number of units shifted at the small primary products Europe unit fell by a quarter.

Price increases and mix could only do so much, however. Statutory revenues at FBS – the key division – nudged up only 2 per cent to £707mn, as consumer demand and de-stocking headwinds stymied growth despite a solid performance in European markets. Adjusted cash profits at the division were up 10 per cent to £153mn. 

Analysts at Investec argued this month that the market underestimates the company's strength in ingredients "even though its FBS is higher margin than peers, grows sales ahead of its end markets, and has executed multiple ingredients acquisitions over three decades”.

Elsewhere, sucralose revenue fell by 9 per cent to £89mn due to the “phasing of orders” last year and primary products Europe revenue was flat. This must give new chair David Hearn, who will take the reins in January, some food for thought.

Profits still surged, though. The company’s statutory share of profit from its Primient joint venture — it sold its controlling stake in the producer of plant-based foods last year — swung by £46mn from last year to an £11mn inflow in the half.

Management guided for full-year cash profit growth of 7-9 per cent, but revenue is expected to be only slightly up on last year (the company is targeting annual revenue growth of 4-6 per cent in the five-year period to 2028). The shares trade at 11 times forward consensus earnings. Hold. 

Last IC View: Hold, 801p, 25 May 2023