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Consumption trends working against Tate & Lyle

As the group continues to operate in "challenging market conditions", management has adopted a much more cautious outlook for FY2020
May 24, 2019

Amidst “challenging market conditions”, Tate & Lyle’s (TATE) momentum appears to be slowing. Accounting for over 60 per cent of revenue, the group’s largest division, primary products, saw stagnant sales growth of just 1 per cent at constant currencies in FY2019.  

IC TIP: Hold at 768.6p

A standout performance from sucralose saw an 11 per cent surge in adjusted operating profit to £61m. However, while demand is expected to continue growing, prices will likely moderate in the face of increasing generic supply from Chinese manufacturers which is already squeezing margins.

Growth was more muted in food and beverage solutions as adjusted operating profit increased by 3 per cent at constant currencies to £143m. A £43m exceptional charge linked to the sale of the oats ingredient business is reflected in the subdued statutory pre-tax profit. With a consumer trend towards reduced sugar consumption, future growth will likely come from the new products division – sales increased by 2 per cent at constant currencies to £95m.

With a “largely flat” food and beverages market, US sales grew by just 2 per cent at constant currencies. Higher pricing and reduced promotional activity saw lower US demand for carbonated soft drinks contributing to the overall 6 per cent decline in adjusted operating profit for sweeteners and starches.  

Liberum forecasts adjusted operating profit of £318m and underlying EPS of 54p for the March 2020 year-end, rising to £329m and 56p in FY2021.

TATE & LYLE (TATE)   
ORD PRICE:766.6pMARKET VALUE:£3.58bn
TOUCH:766.6-768.6p12-MONTH HIGH:810pLOW: 602p
DIVIDEND YIELD:3.8%PE RATIO:20
NET ASSET VALUE:318p*NET DEBT:23%
Year to 31 MarTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20152.3425.00.9028.0
20162.3612626.128.0
20172.7523355.028.0
20182.7128657.028.7
20192.7624039.229.4
% change+2-16-31+2
Ex-div:20 Jun   
Payment:31 Jul   
*Includes intangible assets of £342m, or 73p a share