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Tate & Lyle Plc Interim Update – 27 November 2014

Company Overview

Tate and Lyle has been one of the world’s leading specialty food ingredient providers since it was formed through a merger of Henry Tate & Sons and Lyle’s Golden Syrup in 1921.

The company discovered Sucralose (SPLENDA Sucralose) during the 1970s and later disposed of its sugar business in order to focus on maintaining its position as the world’s dominant force in artificial sweeteners and specialty food ingredients.

Index FTSE 250 Ticker TATE.L Latest Close 610.00
52 Week High 825.32 52 Week Low 570.69 P/E (F) 15.2
Dividend Yield % 4.1 Dividend Cover 2.2 CEO: Javed Ahmed
CFO: Nick Hampton Previous Price Target 775.00 Current Price target 560.00

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Investors begin to lose patience with Tate & Lyle on second profit warning; shares remain under pressure

Since covering Tate & Lyle back in July the shares have reversed their earlier gains and remained under pressure throughout much of this time, largely as a result of several trading updates which have seen management announce one catastrophe after another.

In short, a range of factors contributed toward a 20% downward revision to earnings expectations for the full year including the bad weather seen in the US at the open of 2014, which is now believed to have had a much more severe impact upon the group’s supply chain and inventory levels than many had previously anticipated.

In addition to lost output in North America, the earnings outlook for the group was further exacerbated in the second and third quarters of this year by additional declines in Sucralose prices, and an accident at T&L’s Singapore sucralose production facility.  The accident led to the death of at least 1 employee and a total of £12 million in charges to date.

As a result, after rallying to 744.00 pence in early September and just a short distance from our target price of 775.00 pence, the shares have fallen back by a considerable distance to touch noses with a 3 year low of in early October.

Today the shares sit just above the 600.00 pence level although, with two profit warnings within the space of just as many months and an absence of positive news flow for the group; we believe it is likely that they could still fall further during the months ahead.

Tate & Lyle Share Price // 8 Hour Intervals

TATEANDLYLECHARTNOVEMBER

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Looking ahead

All in all, earnings are likely to be 20% lower for the group in 2014 and while it remains well positioned for growth in 2015 and future years, investors now appear to be losing patience with Tate & Lyle Plc.

On a positive note, the 2015/16 is likely to see the results of a strategic review lead to some supply chain improvements, which should prevent the catastrophe that took place with inventories this year.

This is while new product launches scheduled at the high margin specialty foods division could also support a recovery in earnings.

However, and despite the above; we do not believe that this will be enough to save the Tate & Lyle shareholders from further losses ahead of full year results in 2015.  

On the contrary, with the shares having broken below a key long term support at the 635.00 pence level during September, and considering that the valuation remains elevated at 15.2X 2014 EPS & 13X 2015 EPS; we anticipate that the full extent of the downside for Tate & Lyle shares is still to be realised.

Today we revise lower our price target for the group from 775.00 pence, down to 560.00 pence per share. The next major event scheduled for the group is the release of the February interim management statement, which will provide investors with further guidance relating to full year performance.

Annual financial results will be released at the opening of Q2, in April. Accordingly, we shall endeavour to keep all of our members updated with developments for the shares as and when they occur.

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