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Tate & Lyle plc (TATE) ORD GBP0.2916666667

Sell:737.00p Buy:738.50p 0 Change: 8.00p (1.10%)
FTSE 250:1.28%
Market closed Prices as at close on 22 November 2024 Prices delayed by at least 15 minutes | Switch to live prices |
Ex-dividend
Sell:737.00p
Buy:738.50p
Change: 8.00p (1.10%)
Market closed Prices as at close on 22 November 2024 Prices delayed by at least 15 minutes | Switch to live prices |
Ex-dividend
Sell:737.00p
Buy:738.50p
Change: 8.00p (1.10%)
Market closed Prices as at close on 22 November 2024 Prices delayed by at least 15 minutes | Switch to live prices |
Ex-dividend
The selling price currently displayed is higher than the buying price. This can occur temporarily for a variety of reasons; shortly before the market opens, after the market closes or because of extraordinary price volatility during the trading day.

HL comment (7 November 2024)

No recommendation - No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Tate & Lyle reported a 7% drop in underlying first-half revenue to £775mn (£803mn expected), reflecting lower Food & Beverage Solutions revenue, partially offset by strong Sucralose performance. Volume growth returned in the Food & Beverage Solutions business.

CP Kelco performed as expected, delivering strong volume growth and higher revenue. The acquisition is expected to be completed in the next few days.

Underlying cash profit (EBITDA) was up 6% to £188mn (£179mn expected) off the back of better volumes and cost savings.

Free cash flow rose from £48mn to £127mn, largely a result of the timing of some payments. There was net cash on the balance sheet, including leases, of £39mn.

Full-year guidance is unchanged, looking for a slight drop in revenue and cash profit growth of 4-7%.

The shares were broadly flat in early trading.

Our view

The return of volume growth from the main Food & Beverage Solutions business is good to see. The drop in revenue was more a product of lower prices as Tate is passing on lower inflation to its customers. The other main callout from half-year results was the slightly soft full-year profit guide that sits behind market expectations. But we think this is a case of management being a little conservative.

A few more quarters of volume growth from here would be welcome after a period of demand weakness. We’re also monitoring the potential impact from new weight loss drugs, though we remain sceptical about whether these will move the dial.

Tate’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 24.9% 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 like the £1.4bn CP Kelco deal, a leading provider of pectin, speciality gums and other nature-based ingredients, are a key part of the plan.

The acquisition will add some debt to what is otherwise a rock-solid balance sheet. We aren’t concerned, levels are still well within the target range and good cash generation can support an orderly reduction should management want to take that route.

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. Markets have taken this on board, and along with rumours that Tate could be a takeover target from Private Equity firm Advent, the valuation’s seen a rerating in recent months. That increases the pressure to deliver, and there are no guarantees.

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

  • Forward price/earnings ratio (next 12 months): 13.3

  • Ten year average forward price/earnings ratio: 12.4

  • Prospective dividend yield (next 12 months): 2.7%

  • Ten year average prospective dividend yield: 4.5%

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 original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

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.


Previous Tate & Lyle plc updates

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