Tate & Lyle’s trading update revealed first-quarter performance was in line with group expectations.
Food & Beverage Solutions saw volume growth in the first quarter, but revenue is expected to be lower as cost savings were passed onto customers. Cash profits (EBITDA) rose over the period.
Tate acquired CP Kelco for around £1.4bn on 20 June 2024, and the integration is “progressing well.” CP Kelco’s financial performance has stabilised as expected, with volumes well ahead of the prior year.
Full-year guidance (excluding CP Kelco) has been reiterated, with revenue expected to be slightly lower than the prior year and cash profit forecast to grow 4-7%.
Since 20 June, £42mn of shares have been repurchased under the current £215mn buyback programme.
The shares were broadly flat in mid-morning trading.
Our view
Tate & Lyle’s first-quarter trading update didn’t churn up any surprises. Full-year revenue and cash profit guidance have been maintained, and the integration of CP Kelco is moving along nicely. There are still a few small details to iron out with the regulators on this front, but the deal’s expected to be signed off in the final quarter of 2024.
Recent trading has been a little soft. Tate’s continued to see reduced demand for some end products and persistent de-stocking by customers. We’re also monitoring the potential impact from new weight loss drugs, though we remain sceptical about whether these will move the dial.
On a positive note, the Group's making good on its promise to streamline operations and focus on the most profitable parts of the business. The margin benefits are coming through, and an underlying cash profit (EBITDA) margin of 19.9% was a step up from last year.
The core business is in food & beverage solutions, with smaller units focusing on European sweeteners and the sugar alternative Sucralose. But it's the core business, specifically solution-based partnerships, that we see as a key growth driver. This is where it partners with customers to create bespoke solutions to their dietary and nutritional needs. Deeper relationships and closer ties add an element of stickiness to the business, and enable Tate & Lyle to leverage its technical expertise.
The sale of Tate’s remaining stake in the Primient joint venture is important. It was the last remnant of the legacy business and an important hurdle to clear. From here acquisitions and expansions are a key part of the plan, and we've seen a ramp-up in internal and external investment to drive the next era of growth.
Cash flows are also strong enough to support some well-timed debt repurchases, bringing down interest costs, which is helping to support the margin expansion. The balance sheet is strong enough without these actions, but it's refreshing to see some prudent capital allocation supporting longer-term goals.
The renewed focus on speciality ingredients and solutions, a strong management team, and a balance sheet with enough firepower to expand all give scope for optimism. The valuation, roughly 11 times expected earnings, isn't too demanding. In the short term, volume challenges and the potential impacts from new weight loss drugs continue to loom overhead. It'll take some knockout performances for sentiment to shift.
Environmental, social and governance (ESG) risk
The Food and Beverage industry is medium risk in terms of ESG, with some subsectors - like agriculture, tobacco and spirits - falling into the high-risk category. Product governance is an area of concern industry wide due to strict quality and safety regulations and incoming environmental regulations. Other risks vary by sub-industry, but human capital, community relations and resource use tend to impact most companies in this sector either directly or through their supply chains.
According to Sustainalytics, Tate & Lyle’s management of material ESG issues is strong.
Tate & Lyle ESG reporting doesn't adhere to leading standards, but they have assigned board-level responsibility for overseeing ESG issues. There’s a robust environmental policy that ties executive compensation directly to ESG performance targets. Scope 1,2 and 3 emissions data is disclosed, and the group’s carbon intensity has been on a declining trend for several years. Additionally, the whistleblower program is considered very strong.
Tate & Lyle key facts
All ratios are sourced from Refinitiv, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is not advice or a recommendation to buy, sell or hold any investment.No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.Non - independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place(including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing.Please see our full non - independent research disclosure for more information.