ii view: Tate & Lyle offers a 4% plus dividend yield

Profit progress and an attractive dividend weigh against recent hits from Covid-19. 

Full-year results to 31 March 2020

• Adjusted revenue up 2% to £2.88 billion
• Adjusted profit up 4% to £331 million
• Statutory profit up 23%
• Final dividend unchanged at 20.8p per share
• Full-year dividend payment up 0.7% to total of 29.6p per share

Guidance:

• Offering no current full-year estimates

Chief executive Nick Hampton said:

"Tate & Lyle is a resilient business that meets challenges head-on.  The fundamentals of our business remain sound despite the challenges of Covid-19.  Our high-quality portfolio of ingredients and solutions enable consumers to enjoy healthier and tastier food products and drinks.  Demand for these products is growing and this trend is here to stay.  

"Combined with our financial strength, this gives me confidence we will navigate this period successfully and that our future prospects remain strong."

ii round-up:

Food producer Tate & Lyle (LSE:TATE) reported profit gains across all of its constituent businesses led by a 10% increase for Food & Beverage solutions to £162 million.

Total group pre-tax profit jumped by 23% to £331 million, although when stripping out exceptional costs and gains from last year, rose by a more pedestrian 4%.

Both the core divisions of Food & Beverage, including sucralose, and its Primary Products division, continued to benefit from productivity gains and cost discipline.

In 2018, Tate announced a new strategy including sharpening its focus on customers, accelerating product development and simplifying the business.

The final dividend payment, although left unchanged, is being paid in contrast to many other companies, with the total payment for the full-year up 0.7% to 29.6p per share.

Tate shares rose by more than 1% in UK afternoon trading. A share price loss of 15% year-to-date counters a gain of the same magnitude over 2019. Shares of fellow food producer AB Foods (LSE:ABF), and owner of Primark, are down over 35% year to date while owner of brands including Mr Kipling and Angel Delight, Premier Foods (LSE:PFD), has seen its shares rise by over 16%.

But more recent trading at Tate has suffered under the corona crisis. For April, bulk sweetener volumes used in items such as fizzy drinks fell 26%, as US bars, restaurants and cinemas closed. Industrial starch volumes retreated by 9%, hit by falling demand for paper & packaging as schools and offices shut. 

Group measures to tackle Covid-19 have included blocks on all non-essential discretionary spending, increased hygiene protocols and special cash bonuses to front-line staff. No employees have been furloughed.

A first-quarter trading update is now scheduled for late July. 

ii view:

Management is currently pursuing a series of initiatives to enhance group performance. But demand for carbonated soft drinks in the US can, and has, impacted its sweeteners business. Its industrial starches, used to make paper and packaging, has also seen demand hit by closed offices and schools. Sweeteners and starches accounted for around 40% of 2019/2020 full-year profit. Currency fluctuations can also boost or hinder performance. 

For investors, a retained dividend payment in the current corona crisis is a clear positive. An historic and estimated forward dividend yield of over 4% is not to be ignored during the pandemic and ultra-low interest rate environment. However, despite liquidity of over $1 billion, and what appears to be a strong balance sheet, it looks early to fully assess the hit from Covid-19 on this still transforming food producer.  

Positives: 

• Productivity programme upped from $100 milion over 4 years to $150 million over 6 years
• Attractive dividend payment (not guaranteed)

Negatives:

• April sweetener & starch sales hit from Covid-19
• Sucralose FY volumes fell by 4%

The average rating of stock market analysts:

Hold