The Investment Column: Tate & Lyle may be over the worst

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The Independent Online
It has been a difficult year for Tate & Lyle, the sugar and sweeteners group. It has been exposed to fluctuations and excess capacity in its key markets while margins on the group's core commodity product, high- fructose corn syrup, have been the lowest ever recorded.

Given all this it was no surprise that the shares took a pounding in the summer when they lost 13 per cent of their value in one month and the company made an ignominious exit from the Footsie.

Several analysts reckoned the stock was oversold then and it has duly bounced back to levels seen late last year. Yesterday's results provided further evidence that the company is on a stable footing and that the worst may be over.

Full year, pre-exceptional profits at pounds 241.3m were ahead of some expectations and the pounds 82m of exceptional charges for restructurings and write-downs announced at the interim stage. The City is warming to the group's progress in shifting its sales mix towards added-value products and these higher- margin products now account for a quarter of sales and are growing.

The performance of the Staley business in the US was impressive, given the 20 per cent fall in margins caused by the drop in high-fructose corn syrup prices, new market entrants and oversupply. The US sugar business also did well.

The chief disappointment was Amylum, the European starch and sweetener group, where profits fell sharply due to currency factors and costs were incurred in the $500m investment in a new starch plant.

Management's strategy is to continue to expand in added-value areas, extend further into emerging markets while cutting the cost base in the core US and European businesses.

Tate & Lyle is heavily reliant on the next year's prices for high-fructose corn syrup which are decided in January. Negotiations are active now and analysts say that as spot prices have been slightly higher there is a good chance that these will feed though to next year's contract prices.

On full year forecasts of pounds 260m, the shares - 6.5p ahead to 466.5p yesterday - trade on a forward multiple of 13. At these levels a decent share for the long term.