Investment View: Tate & Lyle's sugar rush has waned so it's time to scoop some profits

 

Tate & Lyle: Our view: Hold
SHARE PRICE: 709P (-1P)

Javed Ahmed is one of a small number of chief executives who can say he has made a real and tangible difference to the business which his shareholders appointed him to run without generating a cynical response.

A look at where the shares stood when he joined and where they stand now tells its own story. Tate & Lyle was in the investment doghouse for years. There were profit warnings, there was a stalling share price, there was no reason to invest, really.

Since then, however, the stock has acquired some real momentum. Handy, then, that the Independent has been suggesting a buy for a couple of years now.

The last time this column took a look was in November 2010 when we again said "keep buying" at 524.5p. Apart from a brief wobble (last summer when the market nosedived) that has proved sage advice. The shares have been on the up ever since.

Mr Ahmed is certainly no sweetie – file under the heading "ruthless American CEO" – but he has pulled the business up by the scruff ofits neck.

The question is, have the shares now simply reached the sort of level they ought to have been at had the company been run a bit better or is now the time to take profits?

Mr Ahmed has certainly not been afraid of hard decisions. Those include selling Tate & Lyle's iconic European sugar-refining business and its London golden syrup factory to American Sugar Refining, also in 2010.

The disposal included the sale of the rights to use that historic brand name. Lyle's golden syrup is by some estimations the world's oldest brand.

The corporate Tate & Lyle's portfolio of agribusinesses has been reshaped to focus on higher-margin areas or "value-added" businesses, including supplying sweeteners, bulk starches and ethanol. You'll find the company's wares in any number of products, including soups, sauces and dressings.

Artificial sweeteners are an important product in the form of Splenda, or sucralose, which is calorie free but made from sugar. However, investors need to keep a close eye on the competitive impact of extracts from the Stevia plant. Already the market leader in Japan, it is steadily overcoming regulatory resistance elsewhere.

In the more immediate term, Tate & Lyle endured a rather soft third quarter. Sucralose volume growth was slower than in the first half (although it was always going to be tough for the company to match this).

Strong demand from Mexico and North America helped bulk ingredients although co-products (think corn and what comes from it) was soft compared with the first half.

Not the most stunning quarter, then, but as analysts at Charles Stanley note, Tate & Lyle sensibly adopted a defensive stance. A fourth-quarter update is due next week.

As to the financials, debt, once something of a bugbear, now looks very manageable at 0.9 times earnings for interest, tax, depreciation and amortisation.

Which brings us to valuation. Tate & Lyle now trades on just under 13 times forecast full-year earnings for 2011 while the once-compelling yield is now merely ordinary at a prospective 3.5 per cent. The decline in the latter is a reflection of just how well the shares have been growing, and the company has been returning more capital to shareholders by buying them back.

All the same, the attractions of the stock are less obvious than when we were riding this horse on the way up.

Long term the arguments in favour of investing in this sort of agribusiness are sound. It operates in a growing market because the world has a growing population of people with the ability to pay for products containing that stuff Tate & Lyle produces and ships.

However, investors looking for exciting growth might now be best advised to take some profits. The sweetest part of Tate & Lyle's revival is now over and it will be tough for the shares to maintain their momentum from here.

Long term, though, I'd still be a holder of this stock.

Start your day with The Independent, sign up for daily news emails
Voices
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm today
News
Elton John and David Furnish exchange marriage vows
peopleSinger posts pictures of nuptials throughout the day
News
File: James Woods attends the 52nd New York Film Festival at Walter Reade Theater on September 27, 2014
peopleActor was tweeting in wake of NYPD police shooting
Sport
Martin Skrtel heads in the dramatic equaliser
SPORTLiverpool vs Arsenal match report: Bandaged Martin Skrtel heads home in the 97th-minute
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'