Investment Highlights
 

1. Tate & Lyle Plc (LON: TATE) is a UK based company, with strong expertise in dressings, sauces, soups, dairy and Beverages.

2. The group has 18 laboratories globally, offering technical and application service to customers in local markets.

3. The company has a strong global presence and serving customers from over 120 countries worldwide.

4. The group has a strong revenue growth with a decent operational performance for the period.

5. Continuous momentum of volume and sales growth should deliver progressive profitability and shareholder value in future.

6. Rising global demand for healthier food and beverages holds the potential for a bright future.

7. Accretive portfolio development to accelerate innovation by selective acquisitions and joint ventures shall save development time and cut the cost further. 

8. The company has offices, plants and labs in over 30 countries with an employee base of more than 4,100 professionals globally.

9. The group emerges as a global leader in industrial starches, stabilisation, fibres, texturants and sweeteners.

10. The company works closely with its suppliers to offer quality products and an end to end services to its customers.

11. TATE offers a wide variety of solutions including sugar and calorie reduction, Non-GMO alternatives, digestive health, fibre enrichment and science-based solutions.


Tate & Lyle PLC (LON: TATE)
 

Tate & Lyle PLC (LON: TATE) is a FTSE 250 listed, British-headquartered company which provides solutions and ingredients for beverage, food and industrial markets. It operates through two major divisions, namely Food & Beverage Solutions and Primary Products, while food and beverage represent nearly 70 per cent of their total sales. The group has expertise in solutions and ingredients related to Food & Beverage solutions, Primary products, Industrial products, Animal feed and Pharmaceutical and Personal care products. The Tate & Lyle came into existence in 1921, and currently, the group serves customers in over 120 countries with more than 4,100 employees. The group has offices, plants and labs in more than 30 countries and possess 18 laboratories. It had processed 1.5 million acres of corn in the United States in 2019.

On 21^st May 2020, the group will announce its full-year presentation, and it will hold the annual general meeting on 23^rd July 2020.


(Source: Annual Report, Company Website)

Capabilities of Business Divisions

1. Food & Beverage Solutions: This division produces Texturants, Sweeteners and a portfolio of Health and Wellness products including speciality fibres and stabilisers & functional systems.

2. Primary Products: It consists ofindustrial starches, high-volume sweeteners and fermentation products (mainly acidulants). It also markets and sells co-products from the corn milling process.
 

Key Statistics



Tracking Status of 2019 through Key Performing Indicators
 

1. Recordable incident rate and Lost-work case rate: In 2019, their recordable incident rate aggravate by 24 per cent and lost-work case rate by 32 per cent.

2. Food & Beverage Solutions volume: Volumeincreased by 3 per cent, primarily driven by 15 per cent growth in the Asia Pacific (APAC) and Latin America, and 3 per cent growth in North America. The growth offset the 2 per cent volume decline in Europe, Middle East and Africa (EMEA) region.

3. Food & Beverage Solutions sales:Sales increased by 5 per cent with a growth of 2 per cent, 13 per cent and 4 per cent in North America, APAC and EMEA region, respectively.
 

Strategy to Deliver Shareholder’s Returns


 
(Source: Annual Report)

Vital Developments of 2020
 

1. 20^th April 2020: The Tate group received approval for its claim against PROMITOR® Soluble Fibre functional from the Anvisa (the Brazilian Health Regulatory Agency).

2. 11^th March 2020: The company introduced CLARIA EVERLAST® (starch that delivers shelf stability). It will strengthen its primary products division.

3. 12^th February 2020: The group had embarked into the personal care category with TEXTURLUX® Personal Care Additives.

4. 4^th February 2020: The Tate & Lyle PLC announced a partnership with Zymtronix for developing enzyme immobilization platform to producing the target ingredients.
 

Top Shareholders

 

Trading Update for 3 months Period with Strong Operating Performance (31^st December 2019)
 

1. On 6^th February 2020, Tate & Lyle released an update on the trading performance for three months period ending 31^st December 2019. The group’s underlying performance remained in line with expectations and guidance for full-year remained unaffected.

2. In Food & Beverage Solutions business, the company reported strong adjusted operating profit for the period with increased sales and volume in line, reflecting good mix management and price.

3. Driven by decentoperational performance, the group’s sucralose business reported an increase in sales and adjusted operating profit.

4. In Primary products business, the company remained on track to show consistent performance for the full-year.

5. In the financial year 2020, the group expect its earnings per share to be flat or lower single-digit growth.
 

Financial Highlights – H1 Financial Year 2020 with Strong Top-line Momentum (30^th September 2019)


(Source: Interim Report, Company Website)
 

1. In the first half of the financial year 2020, driven by good price and mix management and the impact of passing through higher net corn costs, sales from continuing operations for the group was GBP 1,476 million, which was 2 per cent higher in constant currency and 7 per cent higher than the prior period.

2. Due to improved operating performance and lower exceptional charges, profit before tax on a statutory basis increased by GBP 51 million to GBP 164 million, while adjusted profit before tax of GBP 181 million was 9 per cent higher than the prior period (3 per cent in constant currency). 

3. Statutory diluted earnings per share increased by 10.4 pence to 27.8 pence, reflecting lower exceptional charges in the period, while adjusted diluted earnings per share at 30.5 per cent were 9 per cent higher (3 per cent in constant currency) and adjusted basic earnings per share increased by 9 per cent (3 per cent in constant currency) to 30.8 pence.

4. Overall net debt at 30 September 2019 of GBP 465 million was GBP 128 million higher than at 31 March 2019, and due to the adoption of IFRS 16 leases in the period, adjusted free cash was GBP 171 million, GBP 19 million higher than the prior period.
 

Financial Ratios: Strong Profitability Margins versus the Industry Median

 

The reported EBITDA margin, Pretax margin and Net margin reported was 18.6 per cent, 11.1 per cent and 8.9 per cent, respectively, for the first half of the financial year 2020 and stood higher as compared to Industry Median and H1 FY2019 data. Return on equity for the first half of the Financial year 2020 stood at 9.1 per cent, which was higher than the Industry Median. On the liquidity front, Tate & Lyle Plc’s current ratio was higher than the industry median of 1.60x. On leverage front, the debt-equity ratio of the Tate & Lyle Plc’s was 0.58x, which was higher as compared to the industry median of 0.36x.

Share Price Performance


Daily Chart as on 27^th April 2020, before the market close (Source: Thomson Reuters)

On April 27, 2020, at the time of writing (before the market close, at 9:33 AM GMT), Tate & Lyle Plc shares were trading at GBX 694.20, up by 1.37 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 811.40/GBX 493.83.

Bullish Technical Indicator

From the technical standpoint, its shares were trading well above its short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology

Method 1: Price/Earnings Approach (NTM)

 

To compare Tate & Lyle Plc with its peers, Price/Earnings multiple has been used. The peers are Cranswick Plc (NTM Price/Earnings was 22.85), Hilton Food Group Plc (NTM Price/Earnings was 20.61), Glanbia Plc (NTM Price/Earnings was 10.42), Greencore Group Plc (NTM Price/Earnings was 9.86) and British American Tobacco Plc (NTM Price/Earnings was 8.68). The Average of Price/Earnings (NTM) of the company’s peers was 14.50x (approx.).

Method 2: Price/Cash Flow (NTM) Approach  
 
 

To compare Tate & Lyle Plc with its peers, Price/Cash Flow multiple has been used. The peers are Unilever Plc (NTM Price/Cash Flow was 15.16), Glanbia Plc (NTM Price/Cash Flow was 13.06), Greencore Group Plc (NTM Price/Cash Flow was 8.79), Premier Foods Plc (NTM Price/Cash Flow was 6.34) and Bakkavor Group Plc (NTM Price/Cash Flow was 3.46). The Average of Price/Cash Flow (NTM) of the company’s peers was 9.36x (approx.)

Valuation Metrics


(Source: London Stock Exchange)
 
As on 31st March 2020, the Price to Earnings and EV to EBITDA multiples of the Tate & Lyle Plc was around 16.9 and 7.5, respectively, which was lower as compared to the industry. It reflects, shares are undervalued against its peers. 

Dividend Yield


(Source: Thomson Reuters)

Tate & Lyle Plc has a dividend yield of 4.32 per cent, which is higher than the industry dividend yield and sector dividend yield of 2.07 per cent. This needs to be considered in view of the recent correction in the stock price.

Tate & Lyle Plc Vs FTSE Mid 250 Index (1 Year)


(Source: Thomson Reuters)

In the last year, Tate & Lyle Plc share price has delivered negative 8.08 per cent returns as compared to negative 21.54 per cent returns of FTSE-Mid 250 index, which shows that the stock has outperformed the index during the last year.

Total Return 5 Years


(Source: Thomson Reuters)

Tate & Lyle Plc has generated a total return of 40.91 per cent in the last five years versus the total return of FTSE All share of 0.29 per cent for five years period.
 
Quick Glance at Market Trends

The global trends for food companies are challenging, albeit it holds opportunities as well. As per the market analysis, the global specialty food ingredients market is valued around USD 79.81 billion in 2020, and it is projected to value nearly USD 121.6 billion by 2025, representing the compounded annual growth rate of 6.2 per cent between 2020 to 2025. While the industry is facing increasing raw material cost, the demand for low sugar food alternatives putting further pressure. The major drivers for change include rapid population growth, urbanisation and use of technology.

The key factors that will drive the food industry forward are:
 

1. 30 per cent rise in population by 2020.

2. Growing middle-class population from 2.8 billion in 2015 to 5.3 billion by 2030.

3. 70 million children are projected to be overweight by 2025 globally.

4. 35 cities, states and national government have introduced sugar tax.

5. Around 114 million diabetic adults were in China in 2017.
 

The Tate group has been partnering with customers to create solutions and ingredients for making healthier and tastier products at affordable prices. The group has been targeting low sugar, low calories and fibre enriched food solutions and ingredients. Moreover, the volume size of the company was able to offset the industrial cost increase to maintain the profitability in the primary products division. Further, the group is focused on accretive portfolio development. For example, the company partnered with Codexis to come up with TASTEVA® M Stevia Sweetener.

Growth Prospects and Risk Assessment
The company has been focussing on creating high-quality products and services, which had resulted in a higher level of customer satisfaction. The company is well-positioned to take benefits from growth trends across the energy and industrial markets. The company, through its dedicated research and development team, is providing superior quality products and also bringing new products and technologies which is helping them to expand into new industries. The company using its cost synergies had optimized its operational structure to achieve sustainable growth in the future. Fluctuations in the raw materials price and availability of operating inputs could impact the profitability of Tate & Lyle. Failure in cybersecurity and a critical data breach could affect the operations as well as the reputation of the Group.

Business Outlook Scenario

In the third quarter of the fiscal year 2020, the company has reported decent growth as compared to the same period last year. Its guidance for the fiscal year ending 31 March 2020 remains unchanged. In all of its businesses, sales and adjusted operating profit were ahead of the same period last year, which reflects good operational performance, strong performance in manufacturing and supply chain and good cost discipline.

While the company reported that its four-year $100m productivity programme was on track and reported a forecast-beating rise in first-half operating profit. Focus on research and development and on safety are the company’s major strengths. Tate & Lyle’slargest business remains its primary products division, focused in North America, where it produces high fructose corn syrup and various starches. The group is actively seeking for acquisitions to expand the part of its business that helps big food companies to reformulate their products to reduce sugar, salt, and fat. 

Over the course of 3 years (FY16 - FY19), the company’s revenue surged from GBP 2,355 million in FY16 to USD 2,755 million in FY19. Compounded annual growth rate (CAGR) stood at 5.37 per cent.

Based on the decent prospects and support from the valuation as done using the above two methods, we have given a “BUY” recommendation at the closing price of GBX 684.80 (as on 24^th April 2020), with lower double-digit upside potential based on 14.50x Price/Earnings (approx.) on FY20E earnings per share (approx.) and 9.36x NTM Price/Cash flow(approx.) on FY20E cash flow per share (approx.).
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.
*The “Buy” recommendation is also valid for the current price as covered in the report (as on 27th April 2020).