The Week Ahead: Could Tate & Lyle's sweet success turn sour?

Click to follow
The Independent Online

Few investors would have backed sugar and starch producer Tate & Lyle to be among the FTSE 100's best performers over the last 12 months. However, the shares have added almost 80 per cent since last November and after many years on the public market the stock is now in previously uncharted territory.

The latest news from the company is that it is considering a full or partial sale of Talsiie, its European food and industrial ingredients arm. In light of reform of the European sugar regime, the company no longer sees this unit as core to its business. Brokers have reacted very positively to the decision.

The sweetest part of Tate & Lyle's business in the last couple of years has been sucralose, which sells under the brand name Splenda. Tate does not own the brand but does own patents on the manufacturing process, giving it a virtual monopoly on supply. Margins on sucralose are currently running at about 50 per cent, but with several patents running out in 2007 investors should be aware that it is only a matter of time before Indian and Chinese manufacturers muscle in on sucralose production. The company has also benefited from short supply of high fructose corn syrup, used to sweeten carbonated drinks in the US.

The broker Panmure Gordon is expecting the company to report a 26 per cent jump in first-half pre-tax profits to £171m, but with the shares trading at an all-time high, the broker also believes that there is a lot of good news already in the price.

TODAY: Results: First half - Connaught.

TOMORROW: Investors in ARM Holdings, the semiconductor design and licensing group, can be forgiven for a bout of nerves prior to today's third quarter numbers. Two major rivals, CSR and Wolfson Microelectronics, have disappointed the market in the last month and been hammered for it. ARM, once the darling of the tech sector, has escaped relatively unscathed but that is partly because the shares have significantly underperformed the market in the last three years.

The second half of the year is normally stronger than the first, and with a handful of decent contracts signed since the last results investors could get a pleasant surprise. Consensus forecasts are for pre-tax profit of £24.2m based on revenues of £66.7m.

If last week's results from BAT are anything to go by, investors should not be expecting anything too exciting from Imperial Tobacco. But in today's volatile markets that is probably what most shareholders are looking for. September's pre-close trading statement confirmed that the group is trading in line with market expectations, but expect further weakness in some European markets, especially Germany. The broker UBS is forecasting full year pre-tax profits of £1.2bn.

Results: Full year - Lok'n'Store; Egdon Resources; Imperial Tobacco; Starvest. First half - Alterian; Matalan; Umeco. Third quarter - ARM Holdings; Tomkins.

WEDNESDAY: Results: Full year - Chrysalis. First half - ITIS Holdings.

THURSDAY: The last month has been a roller coaster ride for Carphone Warehouse shareholders. A deal to buy AOL's UK operations for £370m saw the shares hit 360p before Vodafone dropped a bombshell by announcing that it is to cut ties with the retail arm of Carphone, and Orange is set to review its retail relationships and strategy in January. Broadband may have made the headlines for the company in the last six months, but it is a retail business first and foremost, and if Orange follows Vodafone the shares could take another hammering.

These issues are likely to take a back seat with the numbers, but with "free" broadband costs already forecast to hit £70m the company will need to deliver a reassuring set of numbers if the shares are not to fall further.

Results: First half - Carphone Warehouse; Tate & Lyle. Third quarter - Imperial Chemical Industries; Mapeley; Randgold Resources; Smith & Nephew; Unilever.

FRIDAY: BSkyB will update the market on broadband take-up numbers on top of first quarter earnings. Analysts are expecting at least 100,000 broadband customers; anything less and serious questions will be asked about the broadcaster's strategy.

The company is investing £400m into its broadband push - equivalent to more than 15 per cent of the next two years' forecast profits.High stakes indeed.

Results: First quarter - BSkyB. First half - British Airways. Third quarter - Millennium & Copthorne Hotels.

Comments