Company Reports

We confirm our GBX 900 fair value estimate for narrow-moat Tate & Lyle after it announced an agreement to acquire US-based specialty chemical producer CP Kelco from J.M. Huber for a total consideration of USD 1.8 billion on a debt-free, cash-free basis. CP Kelco’s portfolio consists primarily of natural-based ingredients, such as pectin and specialty gums used to improve the “mouthfeel” of food products. This represents a key platform for Tate & Lyle that is now being strengthened by CP Kelco’s leading portfolio and is aligned with consumer demand for clean-label, plant-based, fiber-rich food products.

Narrow-moat Tate & Lyle reported full-year fiscal 2024 results broadly in line with our expectations and management’s guidance. Adjusted EBITDA was 2% ahead of the prior year, or 7% ahead in constant currency. The volume momentum started to improve in the fourth quarter as customer destocking ended and management saw some signs of ameliorating consumer confidence. Still, as previously guided, the high-single-digit input cost deflation started to add pressure to the top line in the fourth quarter as the company passed through some of the benefits to its customers. This will continue to weigh on the top line at least in the first half of fiscal 2025, although it should be partially offset by gradually improving volume momentum throughout the year. Overall, management guided for a slight decline in revenue and adjusted EBITDA growth in the range of 4% to 7% in fiscal 2025. The input cost deflation will benefit the bottom line, further supported by the ongoing productivity program.

Narrow-moat Tate & Lyle's third-quarter fiscal 2024 revenue was down 4% in constant currency, driven by continued volume pressure from soft consumer demand and customer destocking coupled with a reduced contribution from price increases. Although the volume decline has remained relatively constant in the third quarter compared with the first half of the fiscal year, approximately negative 8% across both periods for food and beverage solutions, input cost deflation has started to add pressure to the top line.

Tate & Lyle, or T&L, is focused on the increasing use of alternative ingredients in food and beverage to remove unhealthy components (sugar, fat, salt), improve nutritional credentials through added fiber, and increase the shelf life of products. We assign the company a narrow moat, as we believe that efforts over the last few years to optimize the portfolio, culminating with the sale in 2022 of a controlling stake in the commoditized primary products business unit, have improved the company’s pricing power and competitive position.

Narrow moat Tate & Lyle reported first-half fiscal 2024 revenue of GBP 857 million and EBITDA of GBP 178 million, slightly above FactSet consensus that called for revenue and EBITDA of GBP 851 million and GBP 166 million, respectively. EBITDA was 7% higher in constant currency compared with the same period last year, driven by pricing actions, mix management, and cost savings. Management also shared their outlook for full-year fiscal 2024, expecting revenue slightly ahead of the prior year and EBITDA growth of 7% to 9%—in line with the year-to-date delivery and midterm guidance earlier this year. We do not expect to materially change our GBX 900 fair value estimate after incorporating these numbers. Shares are undervalued.

Narrow-moat Tate & Lyle delivered a robust set of results for fiscal year 2023—its first year of operating as a business mainly focused on specialty ingredients and solutions, following the sale of a controlling stake in the commoditized primary products business unit in 2022. The results broadly tracked our expectations for adjusted EBITDA (GBP 320 million compared with GBP 328 million in our model) and adjusted operating profit (GBP 249 million compared with GBP 235 million in our model). However, reported revenue growth was 27% compared with our 21% forecast, the difference mainly driven by currency.

Narrow-moat Tate & Lyle, or T&L’s, third-quarter fiscal 2023 trading update tracked our expectations, with strong double-digit revenue growth for food and beverage solutions (accounting for around 90% of group revenue). This was driven mainly by the robust price increases aimed at passing on presently heady cost inflation. Sales volumes also displayed resilience despite the inflationary environment and contributed to the solid top-line result. T&L noted that the underlying volume growth in the quarter has been similar to the first half of the financial year where volumes grew 2% year on year. This is an encouraging sign that consumer demand for healthier, lower-calorie products has not dwindled—even for the more discretionary end-product markets in snacking and beverages—despite the significant inflation and pressure on disposable income.

Narrow-moat Tate & Lyle, or T&L, reported a robust fiscal 2023 half-year result featuring strong double-digit growth in revenue and adjusted operating profit. The pleasing result was primarily driven by the performance of the foods and beverage solutions business unit (around 90% of revenue), which delivered constant-currency growth of 21%. Strong contributions from price and mix shift drove the strong result. By contrast, volumes contracted by 8%, reflecting the planned transition of residual commodity products capacity in Europe to higher-margin specialty ingredients as well as other one-offs related to supply chain disruptions. Still, underlying volume development was positive at 2%, indicating the still-robust consumer demand for healthier, lower calorie products that use T&L ingredients and solutions.

Tate & Lyle, or T&L, is focused on the increasing use of alternative ingredients in food and beverage to remove unhealthy components (sugar, fat, salt), improve nutritional credentials through added fiber, and increase the shelf life of products. We assign the company a narrow moat, as we believe that efforts over the last few years to optimize the portfolio, culminating with the sale in 2022 of a controlling stake in the commoditized primary products business unit, have improved the company’s pricing power and competitive position.

We initiate coverage of Tate & Lyle, or T&L, with a GBX 900 per share fair value estimate, a narrow moat, and standard capital allocation rating. Our medium uncertainty rating reflects the exposure of the business to volatile commodity markets and especially corn pricing, offset by the defensive nature of its packaged foods end markets. Shares screen as undervalued at current levels, trading at a 14% discount to our fair value estimate.

Tate & Lyle, or T&L, is focused on the increasing use of alternative ingredients in food and beverage to remove unhealthy components (sugar, fat, salt), improve nutritional credentials through added fiber, and increase the shelf life of products. We assign the company a narrow moat, as we believe that efforts over the last few years to optimize the portfolio, culminating with the sale in 2022 of a controlling stake in the commoditized primary products business unit, have improved the company’s pricing power and competitive position.

We are no longer providing equity research on the following companies: Chr. Hansen, Tate & Lyle, Kerry Group, Glanbia, Chocoladefabriken Lindt & Spruengli, and Geox. We provide broad coverage of more than 1,400 companies across more than 140 industries and adjust our coverage as necessary based on client demand.

Tate & Lyle, the starch and sweetener ingredients manufacturer, reported an upbeat trading performance in the third quarter ended December 2016. Trends were little changed from the first half, with bulk ingredients doing well, offset by a more challenged speciality business. We maintain our no-moat rating and our GBX 680 fair value estimate, with the shares offering poor value at current levels.

All nine ingredients companies we follow have now reported earnings results. These mostly ranged from in line to disappointing, with only Ingredion's results being (once again) above expectations. In terms of our fair value estimates, four stocks saw no revision (Kerry, Givaudan, International Flavors & Fragrances, Glanbia); only one saw a downgrade (Symrise, by 3%); and four saw significant upgrades (Ingredion by 12%, Christian Hansen by 13%, Tate & Lyle by 15%, and Barry Callebaut by 17%). We have made no changes to moat ratings in the ingredients sector.

No moat Tate & Lyle, the U.K.-based starches and sweeteners manufacturer, reported strong sales and earnings growth for the six months to end September, mostly due to the steep depreciation in the British pound bringing about a large translation benefit. This masks a limp performance in the high-margin specialty business whose volumes were again stagnant. These results contrast starkly with peer Ingredion's strong year-to-date performance. Nonetheless, we are significantly revising up our underlying EBIT forecasts for the years ended March 2017 and 2018 by 16% and 20%, respectively, given currency weakness. We now expect fiscal 2017 sales to be boosted 16% due to currencies, carrying over to a 5% boost for the year to March 2018. Our fair value estimate is revised to GBX 680 (+15%).

Given the continuing weakness of the British pound sterling against major currencies such as the euro and the U.S. dollar since the U.K.'s EU referendum in June 2016, we are upgrading our earnings forecasts and fair value estimate for Tate & Lyle. Our new fair value estimate is GPX 590 per share, up 7%, but shares remain overvalued at current levels. Our no-moat and stable moat trend ratings are unchanged.

Tate & Lyle is a play on secular growth trends such as the increasing use of ingredients in food and beverage to remove unhealthy components (sugar, fat, salt, sodium); reduce the cost of raw materials for manufacturers and increase shelf life of the product; and satisfy the increasing number of formulations being requested by manufacturers. The business is split into speciality (38% of sales, 64% of EBIT) and bulk (62% of sales, 36% of EBIT) ingredients.

Tate & Lyle, or T&L, had a mixed start to the year, during the first three months to end June. The company didn't divulge precise figures, but bulk ingredients' profitability is up strongly, while speciality ingredients' profitability, typically a far higher margin than bulk, is up, but not strongly. This is a reversal of the long-term trends we would expect to see, but are mostly the result of one-off factors. We maintain our no-moat and stable moat trend ratings and our fair value estimate is unchanged at 550 GBX.

Sweetener and starch manufacturer Tate & Lyle reported in-line annual results to the end of March 2016, showing a 1% increase in constant-currency adjusted pretax profit, consistent with management's guidance for a similar level to the previous year. We are increasing our estimates for exceptional reasons: higher-than-expected proceeds from the sale of assets, driving debt levels down, and higher expected foreign exchange benefits from this year onwards, given Sterling's weakness in recent months. As a result, our fair value estimate increases 10% to GBX 550, but we are retaining our no-moat rating and its stable trend.

Tate & Lyle is a play on secular growth trends such as the increasing use of ingredients in food and beverage to remove unhealthy components (sugar, fat, salt, sodium); reduce the cost of raw materials for manufacturers and increase shelf life of the product; and satisfy the increasing number of formulations being requested by manufacturers. The business is split into speciality (38% of sales, 64% of EBIT) and bulk (62% of sales, 36% of EBIT) ingredients.