Stocks in Focus: Tate & Lyle

This week we are looking at Tate & Lyle, the food and beverage ingredients manufacturer, which announced full year results on 25 May. The results for the last financial year were in line with consensus. Sales increased by 17% and the company benefitted from the weak pound.

Tate & Lyle’s business is split into two divisions. Bulk Ingredients (BI) is involved in the production of generic sweeteners such as high fructose corn syrup, whereas the Speciality Food Ingredients (SFI) division produces more technical and often patent protected ingredients.

Over the last two years, under the guidance of CEO, Javed Ahmed, the company has focussed on the higher margin SFI division and moved away from the more commodity related BI division. However, it was the BI division which produced the strongest results in the last year with an operating profits increase of 32% to ￡129m. The SFI division still showed steady growth with an operating profits increase of 5% to ￡181m, which is pleasing to investors convinced by the management’s strategy.

As the SFI division becomes a larger part of the group, the company will transition to a higher quality business with greater barriers to entry. However, the new US Administration plans to reform the North American Free Trade Agreement, which could prove to be difficult for the BI division as Mexico is a key export market for the corn wet milling industry, particularly for high fructose corn syrup.

Our long term outlook remains positive for Tate & Lyle given the improving quality of the business, their focus on SFI and a confident management.

Our long term outlook remains positive for Tate & Lyle given the improving quality of the business, their focus on SFI and a confident management. However, the recent share price performance has been strong and investors should continue to be mindful of the price paid for stocks.

For more stocks in focus: https://www.nwbrown.co.uk/library/

NW Brown Investment Management