Tate & Lyle - Sweet dreams are made of this?

Tate & Lyle: When I wrote on Tate & Lyle back in February, I was concerned that Javed Ahmed’s tenure was losing momentum, although a review of their sweetener, Splenda, had been announced. Today, we have seen the results of that review and more. In Europe the group is exiting much of its bulk sweeteners business ahead of the reform of the EU Sugar Regime in 2017, whilst concentrating on Speciality Food Ingredients. In the process the group will receive Euro240m (with an extra Euro20m potential profit related element in 2019) from their partner, ADM. Production of Splenda Sucralose will be concentrated at Alabama, with the expensive folly in Singapore being closed next year. They expect (hope) that this will make Splenda break even in FY2016 and edge into profit the year after. In a very competitive, but growing, market for sweeteners I think they may still have their work cut out.

Pro-forma in FY2015 (to 31^st March) all this would have knocked £32m off operating profits, a large amount in the context of already reduced expectations for pre-tax profits of some £220m. In eps terms this would be dilution of 5.5p on (previously reduced) expectations for 37p. All they say is that the impact in FY2016 will be “somewhat lower” depending on the completion timetable for the deal. In FY2017 they distil these calculations down to eps dilution of 3p per share, with consensus standing pre-deal at about 42p. So there is clearly a big hit to numbers in the process of this re-jigging, although the ongoing earnings have the potential to be higher quality, as they tilt from ‘bulk’ to ‘speciality’. So, it is no surprise after that lot, that the dividend progression is stalled (better than a cut, I suppose). An unchanged final for FY2015 of 19.8p makes a 28p annual total (+1.4%), against pre-deal consensus of 28.5p. The intention is to go again with 28p in FY2016, when consensus had been for 29.2p. The dividend will still be covered by the reduced earnings and the balance sheet will be helped by the Euro240m from ADM, but, for dividend growth players, this is all a lot of jam tomorrow.

The fact that the share price is fairly steady at 645p today, suggests that the market welcomes the strategic moves as a solution to the ongoing trading issues of the group. Yet, without a big spreadsheet to pore over, it looks like a ball park 39p of eps in FY2017 leads to a PE of 16.5x, with a 28p dividend being a 4.3% yield. I don’t see any rush for dividend growth fans to get involved right now. (Neil Cumming^, 21^st April 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