Is there a sweeter future for the Tate & Lyle (TATE) share price?
By Jenny McCall
07:30, 7 June 2022
Sugar and spice and all things nice may not be the saying of the year for British sweetener supplier Tate & Lyle (TATE). The group's share price has been down over the last few months and with the lingering concern of inflation and the Ukraine crisis, Tate & Lyle (TATE) certainly has some challenges on its hands. But with its full year results out on Thursday, can Tate & Lyle (TATE)’s share price bounce back?
Tate & Lyle (TATE)’s stock price has been declining since February 2022, driven mainly by rising inflation and the Ukraine crisis. Down over 8% since February 2022, the food and beverage supplier has been under some pressure.
Tate and Lyle (TATE) has been struggling since February
Sophie Lund-Yates, Equity Analyst at Hargreaves and Lansdown wrote in a note: “We have a lingering concern in the form of inflation. Tate & Lyle (TATE) relies on several raw materials, including corn, and the Ukraine crisis has caused a lot of volatility in commodity prices.”
Strategic overhaul
But with that said, Tate & Lyle (TATE) does have a few aces up its sleeve, which may give its share price a bit of a boost. Sitting within the FTSE 250, the company is currently outperforming the index.
In addition, Tale & Lyle (TATE) recently embarked on a major strategic overhaul – selling off the least profitable parts of the business and refocusing on higher-growth areas. Tate & Lyle (TATE)’s namesake sugar brand is no longer a part of the company. The groups now focuses on things like sweeteners, thickeners and bulk commodities.
“Tate & Lyle (TATE) could be in a position to deliver a sweeter performance in the future, as last July the group announced plans to sell a controlling stake in its North and South American Primary Products business for £0.9bn. This is easily the least profitable part of the business,” Susannah Streeter, Senior Investment and Markets Analyst at Hargreaves Lansdown wrote in a note.
“Management is planning to return £500m as a special dividend, which would be on top of a dividend yield over the next 12 months of 4.4% and a progressive dividend policy going forwards,” Streeter added.
Tate and Lyle (TATE) has been outperforming the UK 100 (UK100) index lately
Streeter points out that the remaining money from the sale will be used to strengthen the balance sheet – leaving the group with minimal net debt.
“Following the disposal, management should be firmly focused on the most attractive parts of the business and strategy could deliver an appetising return,” said Streeter.
According to analysts, the sale is more than a one-time benefit for shareholders though. The changes mean operating margins rise from 11.1% to 14.8%.
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Good position?
Tate and Lyle (TATE) is also in a good position to grow its presence in sugar-alternatives as a more health conscious public looks for ways to clean up its diet.
Nevertheless, there are still some challenges the company must contend with, one of which is rising inflation and the Ukraine crisis.
“Ukraine’s a major exporter of corn, on which Tate & Lyle (TATE) depends. Corn prices are now soaring, which has the potential to eat into margins if it continues. In the short term, the group’s previously agreed contracts should protect against too much disruption,” Hoy added.
Tate & Lyle (TATE) looks to be on the brink of a fully-fledged turnaround, but only if management can stay the course and use its new cash pile wisely. With inflationary pressures and commodity prices rising, Tate & Lyle (TATE) must ensure they keep a close eye on this, if they are to see a rise in share price.
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