ii view: Tate & Lyle delivers sweeter profit

Tate offers an attractive dividend but is still undergoing change. Should investors buy?

Half-year results to 30 September 2019

• Revenue up 7% to £1.48 billion
• Adjusted pre-tax profit up 3% to £181 million
• Dividend payment up 2.3% to 8.8p per share

Guidance: 

• Guidance for the full-year unchanged
• Expect earnings per share growth in constant currency to be broadly flat to low-single digit

Chief executive Nick Hampton said:

"We made encouraging progress in the first half.  In Food & Beverage Solutions, increased focus on pricing and mix management delivered strong growth.  Profit from Primary Products was lower despite good performance from our manufacturing and supply chain network as market conditions continued to be challenging.  Both divisions benefited from productivity gains and cost discipline. Cash generation was higher and during the half we took further actions to strengthen our balance sheet. Overall, the business is in a strong financial position and delivering clear strategic progress."

ii round-up:

Food company Tate & Lyle (LSE:TATE), which traces its roots back to 1859, continues to undergo a transformation programme. 

In 2018, it announced the three priorities of sharpening the focus on its customers, accelerating product development and simplifying the business. 

Tate revealed half-year results which topped analysts' forecasts. A 4% increase in sales at its Food & Beverage Solutions division helped drive performance, aided by an increased focus on pricing. Cost discipline contributed to an 11% divisional profit increase. 

Tate remains on track to deliver on its four-year $100 million productivity target. New product sales rose by 12% to £55 million, driven by clean-label starches and fibre products. 

It recently opened new offices and expanded labs in Sao Paulo, Brazil and Singapore, offering more opportunity to collaborate with its customers. 

The share price rose by more than 6% in late morning UK trading. 

ii view:

Demand for carbonated soft drinks in the US impacts on Tate's Sweeteners business. Its industrial starches are used to make paper and packaging, demand for which can be affected by e-commerce volumes. Currency fluctuations can also boost or hinder performance. 

Management is currently pursuing a series of initiatives to enhance performance. For investors, a prospective dividend yield in the region of 4.5% is attractive in an era of ultra-low interest rates. A forward price/earnings (PE) ratio marginally below the three- and 10-year averages also offers some enticement. But Tate isn't yet firing on all cylinders and investors may wish to wait for further evidence that any recovery from a six-month downturn is sustainable. 

Positives: 

• Pursuing three initiatives to improve performance
• Targeting stronger balance sheet
• Shares attractive to income seekers

Negatives:

• Sucralose divisional sales fell by 5%
• Accounting changes resulted in an increase in net debt
• Soft commodity prices remain volatile, enhanced by the US/China trade war

The average rating of stock market analysts:

Hold