ii view: Tate & Lyle benefits from healthier food and drink

Moving towards a more focused business serving faster-growing markets. Buy, sell, or hold?

Third-quarter trading update to 31 December

• Transaction to create two focused businesses on track for completion at the end of March 2022.
• Now expects a stronger full-year 2022 profit performance from the soon to be new Tate & Lyle.

Chief executive Nick Hampton said:

“The transaction we announced last year to create two focused businesses is progressing well and we remain on track for completion at the end of March.

“With Tate & Lyle re-positioned as a growth-focused, global food and beverage solutions business serving faster-growing markets, we see significant opportunities ahead.  Consumer demand for healthier food and drink is accelerating globally and with our leading expertise in sweetening, mouthfeel and fortification, the new Tate & Lyle is well positioned to capture this growth."

ii round-up:

Food and beverage ingredients maker Tate & Lyle (LSE:TATE) today reiterated full-year expectations for the existing business but raised forecasts for the soon to be new Tate & Lyle as it continues to work towards the sale completion of its primary products business.

In summer 2021, Tate agreed a $1.3 billion (£900 million) sale of a controlling stake in its Americas primary products business to a private equity firm, leaving it focused on faster-growing healthier food and drink speciality markets. The transaction is due to complete at the end of March. 

Tate & Lyle shares rose by more than 6% in UK trading, leaving them up over 11% year-to-date. Shares for fellow food ingredients maker and owner of Primark stores, Associated British Foods (LSE:ABF), are down around 5% in 2022. The FTSE All Share Index is up 1.1%.

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Sales for the business that Tate is keeping rose 18% overall. Within that, revenue for its Food & Beverage solutions division grew by 19% helped by acquisitions and growth in new products. Sales for its to be retained Sucralose division climbed 8%.

Growth in adjusted profit for its continuing operations is now expected to be in the low double-digit per cent range, up from a high single-digit estimate as of its half-year results. 

As previously announced, following the sale transaction, around £500 million ($700 million) of the sale proceeds will be returned to shareholders through a special dividend and associated share consolidation. The balance of funds will be used for a variety of purposes including investing in growth opportunities.  

Full-year results are scheduled for 9 June.

ii view:

Under the soon-to-be completed deal, Tate expects to benefit from growing global consumer demand for healthier food and drink. It also strengthens its attractiveness as a partner to other speciality ingredients businesses and reduces its exposure to commodities markets and bulk ingredients in North America.

Its Food & Beverage Solutions business develops solutions that reduce sugar, calories and fat, and add fibre across products including drinks, dairy, bakery, soups, sauces and dressings.

For investors, costs for business and industry generally are on the rise. Currency fluctuations can also hinder performance. But the business sale gives it increased business focus on growing consumer demand for healthier food and drink products. Adjusted earnings per share rose 25% for the continuing or new Tate & Lyle in the first half to the end of September. It also retains a substantial equity stake in its Americas primary products business with its own newly focused management. In all, and with Tate pursing new strategic priorities since 2018, long-term investors are likely to stay patient.    

Positives: 

• Increased business focus.
• Reducing debt.

Negatives:

• Group revenue fell 3% over its last financial year.
• Currency movements can hinder.

The average rating of stock market analysts:

Buy