Tate & Lyle results ‘upbeat’ but 'real test to come': analysts

27-Sep-2012 - Last updated on 28-Sep-2012 at 16:36 GMT

Analysts described Tate & Lyle's past six months trading as 'upbeat'

Financial analysts have welcomed Tate & Lyle’s trading update for the six months ending September 30 but warned of a challenging second half.

The company reported that its speciality food ingredients business saw an improved performance in the second quarter, with volume growth in line with the market and sales ahead of the same period last year.

It said growth in the US and emerging markets had offset a weaker performance in Europe, and it expected growth to continue for the rest of its financial year.

Operating profit for bulk ingredients was also ahead of last year “with a strong performance from liquid sweeteners in the US and Europe more than offsetting challenging market conditions in US ethanol”.

Challenging

It said it expected the firm demand for its liquid sweeteners in the US to continue for the remainder of the financial year, but that higher corn prices would reduce isoglucose margins in Europe in the second half and the US ethanol market would remain challenging.

Investec analyst Martin Deboo described the update as “upbeat”. But he cautioned that there were a number of major events still to come that would have a major influence on the outcome of Tate & Lyle’s full financial year.

“The first half update is a bit of a sideshow to the real things that are going to move the share price,” he said.

“Compared with what’s coming it’s relatively unimportant. The sweetner pricing round is crucial for Tate, there are first-half results in early November and there is the December investor seminar.”

Strategy

The investor seminar, which will be the first Tate & Lyle has held for five years, will be held at its Chicago Innovation Centre. Deboo said Tate & Lyle would be discussing its strategy and the event could have a major influence on investor sentiment.

Regarding the update, he said: “The key positive for us was the performance in speciality food ingredients, which provide 60% of profits, accelerated in the second quarter.” He warned that profits for the first half were expected to be flat compared with the first half of the previous year when exceptional circumstances had produced bumper results. But he predicted the market would understand this and factor it into its assess of the firm’s results.

Deboo said Investec would be upgrading its forecasts for the company. “However, bear in mind I am the lowest forecast in the market on Tate & Lyle. I am sitting about 3% below the consensus,” he added.

At Panmure Gordon, Graham Jones and Damian McNeela said the bulk ingredients and speciality food ingredients divisions had both coped well with “headwinds” in the first half, adding: “We think this is a pretty good performance.”