Shares in focus: How Tate & Lyle turned itself around
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Associate Editor
David Stevenson Jun 03, 2011
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After a bad time, British food manufacturer Tate & Lyle is back on form, says David Stevenson.
What is Tate & Lyle?
Mention Tate & Lyle and most people think of sugar manufacture. But now the firm is heading in a new direction that reduces its exposure to volatile sugar prices. Last September it gave up its European sugar operations (including Golden Syrup, the world’s oldest global brand) to focus on value-added speciality food ingredients (SFIs, 67% of 2010 sales). Tate & Lyle’s customers now include animal feed, food, beverages, cosmetic, industrial and pharmaceutical manufacturers. But the firm remains a top supplier of sucralose, the no-calorie sweetener sold in 50 countries worldwide under the ‘Splenda’ name.
What’s the company’s history?
In 1875, Lancashire-born grocer Henry Tate (who funded the eponymous art gallery) brought the sugar cube, recently invented in Germany, to Britain and opened a sugar refinery in London. In 1883, Scottish shipowner Abram Lyle began melting sugar at his own factory. The firms merged in 1921, eventually forming the world’s largest cane-sugar refiner. In 1935, Tate & Lyle joined the FT 30 index: it’s one of just two of the original constituents still listed today. Having fought off a post-World War II attempt at nationalisation, the firm began a global expansion programme. It moved into the molasses business in 1963, into starch-based manufacturing in 1976, and into citric acid in 1998.
Who runs Tate & Lyle?
The top team is quite new: CEO since 2009 is ex-Reckitt Benckiser head Javed Ahmed, whose salary last year was £675,000. Chairman since 2009 is former Marconi boss Sir Peter Gershon. Chief financial officer since 2008 is Tim Lodge, whose pay last year was £382,500.
How has trading been?
Just two years ago the firm was issuing a string of profit warnings. But for the year ended March 2011, adjusted pre-tax profits were up over a third, with earnings per share 36% better, on 5% higher sales. Net debt fell 43%. “We saw steady growth,” says Ahmed. “In SFIs we delivered strong profit growth driven by increased sales volumes across the product portfolio, improved product mix and lower sucralose manufacturing costs.” The final dividend was hiked 5%.
What’s the outlook for the company?
Tate & Lyle expects a “more modest” level of profit growth in SFIs. Sweetener margins will remain “flat” compared to last year, with volumes “slightly down”. But demand for healthy sweeteners has rescued a mothballed Splenda plant in Alabama.
The analysts
Of the 28 analysts surveyed by Bloomberg, 35% are bulls, 10% are sellers, while 55% prefer a ‘hold’ tag. That’s reflected in the narrow range of price targets. Keenest is Harold Thompson of Deutsche Bank, with a target almost 20% above today. “Tate & Lyle has made huge progress in becoming more dynamic,” says Sara Welford at Citigroup. Gloomiest is Dirk Van Vlaanderen at Jefferies, who sees the shares falling 12%. Our view: Tate & Lyle isn’t cheap, but it’s a good-quality British firm and a possible bid target. It’s worth holding.
The numbers
Stockmarket code: TATE
Share price: 607p
Market cap: £2.8bn
Annual sales (year ended-March 2011): £2.7bn
Net assets (last stated): £950m
Net debt (last stated): £464m
P/E (current year estimate): 12.6
Yield (prospective): 3.8%
Geographic shareholdings: UK 57%, US 26%
Directors’ dealings
Tate & Lyle directors have been consistent stock buyers over the last three years. Ten board members have acquired almost 900,000 shares. The timing of the major deals and details of who bought are shown in the chart. There’s been no net selling – sales by Iain Ferguson were more than offset by buying via the firm’s share plan.
Director and total shares bought:
Javed Ahmed: 600,000
Liz Airey: 7,000
Richard Delbridge: 5,000
Iain Ferguson: 150,439
Sir Peter Gershon: 56,450
Douglas Hurt: 5,000
David Lees: 10,000
Tim Lodge: 15,000
Robert Walker: 6,600
Barry Zoumas: 14,000
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