Bottom Line: Sweet perhaps, but hardly dynamic

TATE & LYLE gave the stock market a sweet surprise yesterday. After being too enthusiastic earlier in the year, analysts' reactions to September's profits warning were, apparently, too pessimistic.

Profits for the year to September were at the top end of expectations and this was instantly rewarded by a 9p advance in the shares to 395p. But the longer- term question is whether the year's progress has done anything to merit an upwards rerating.

It has recently been regarded as a low-growth commodity play, although the management has persistently tried to argue that it is more than that. Yesterday's news certainly has helped but there is little to make the company appear remotely dynamic.

At a superficial glance the 17 per cent rise in pre-tax profit looks impressive. But the profit figure is still about 3.5 per cent below the peak reached two years ago.

Take into account the pounds 19.1m currency windfall and there is precious little growth this year. True, there are impressive productivity improvements in the US and there have been cost reductions in the UK. But they amount to little in the scheme of things.

Looking forward, there are growth areas in the business. New operations are being set up in Mexico and Eastern Europe and there are plans for a joint venture in China. These are markets where consumption of sugar and sweeteners seems set to take off. Yet it will be a while before these businesses become a large part of the whole.

And you can forget any aggressive moves in the developed world. Management has said it does not expect to make a rights issue and thinks its gearing is high enough.

On the downside, while management contends the outcome of Gatt will have little effect on its businesses, this is hard to believe. In both of its main markets, the United States and Europe, sugar prices have been kept artificially high.

On a prospective price earnings multiple of 11.5 the price is undemanding. That is what it should be.