Tate & Lyle - very bitter sweet

Tate & Lyle: When Javed Ahmed arrived as the new CEO in 2009, there were high hopes for Tate & Lyle. He arrived fresh from a 17-year stint at the highly successful Reckitt Benckiser, where he had held a succession of divisional head roles. He took over from Iain Ferguson who, amid mis-steps and mounting frustration, had struggled to turn the artificial sweetener Splenda into a blockbuster success. So how has Ahmed done? Well after an initial surge, progress at the group and in the share price seems to have stalled.

In the recently released third quarter update, we saw a mix of good bits with the odd weevil. The bottom line though is that profits are now expected to be at the lower end of the £230m to £245m guidance issued in September 2014, in what has been a year of multiple profit warnings. The more commoditised Bulk Ingredients division is suffering from lower sweetener volumes and lower ethanol profits, with overall results being below expectations. This loss of momentum will set the tone for the division at the start of the 2015/16 financial year. Matters were a bit better in the Speciality Food Ingredients side which had one of its better quarters with ‘strong volume growth’, but Splenda experienced volumes down year on year, amidst a very competitive global market. The product is now subject to, in effect, a strategic review as to its future, with completion due by the end of the financial year on 31^st March. A ray of light is that a recent capital expenditure catch up programme across the demand, supply and planning processes has delivered. So no further incremental capex will be needed in 2016, beyond what has already been announced. However, lost sales caused by the ensuing disruption are not now envisaged as being recoverable until 2016/17 and beyond. In amongst various moving parts net debt has increased from £383m at the end of September to £466m by 31^st December 2014, with further increases to come.

So going with PBT of £230m, gives eps of 38p, against 55.7p last time. The interim dividend was up 5% and for the full year that points to a 29p dividend total. On a recently shredded share price of 576p this is a yield of 5%. Whilst debt is climbing, net debt to EBITDA is currently around 1.5x, so no real pressure there yet and that dividend is affordable if the board choose to support it. But eps recovery from here looks set to be a multi-year journey, which must impact on dividend growth. There seems to be no rush to invest ahead of the finals being announced in the second quarter. (Neil Cumming^, 10^th February 2015)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk  Twitter:  @DividendPower