One FTSE 250 listed Stock Under Buy Zone - Tate & Lyle PLC

Tate & Lyle PLC

Tate & Lyle PLC (LON: TATE) is an FTSE 250 listed entity that is engaged in the provision of ingredients and solutions for the food, beverage, and industrial markets.  

The Company expects to announce its year ended 31 March 2022 results on 9 June 2022.

Investment Rationale for Valuation – Buy at GBX 708.28

• Decent Financial Performance: The company reported decent performance during the period three months ended 31 December 2021, with solid momentum in Food & Beverage Solutions.
• Opportunities Ahead: The Group has repositioned itself as a growth-focused business and is focused on serving faster-growing markets.
• Growth Across Geographies: The businesses in North America and Europe registered double-digit revenue during Q3FY22, owing to decent commercial performance and mix management.
• Transaction Update: As per the company, it is on track for the sale of a controlling stake in its Primary products business in the Americas at the end of March 2022. The management further intends to return ~£500 million to ordinary shareholders through a special dividend with an associated share consolidation, subject to the approval of the shareholders.
• Technical Indicator: The 14-day RSI level of 50.37, is suggesting an indecisive action.

Key Risks

• Global Risk Concerns: The geopolitical tension over the war in Ukraine has given rise to raw materials cost and inflation. This can have an impact on the company’s operations.
• Geography Risk: The company has also operations in multiple geographies which makes it prone to the risk of foreign exchange.

Financial Highlights (for the 3 months ended 31 December 2021, as of 11 February 2022)

(Source: Company Website)

• Rise in Revenue: The company reported over 19% increase in revenue from Food & Beverage Solutions, compared to the prior corresponding period. This was on account of higher volume, price mix, acquisition benefits and growth through new product launches.
• Decent Outlook: The Group expects performance from continuing operations to be stronger in FY22.

One Year Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY23E)

*Peers: Some of the peers considered are Hilton Food Group PLC, Cranswick PLC, and Greencore Group PLC.

*All selected peers are LSE-listed Companies from the Consumer Staples sector.

Conclusion

The management seems to be optimistic about its prospects in 2022 with a new business pipeline in Food & Beverage Solutions and renewed customer contracts.  

Based on the decent revenue growth, expected demand going ahead, positive outlook and support from the valuation as done using the above method, we have given a “Buy” recommendation on Tate & Lyle PLC at the current market price of GBX 708.28 (as of 25 March 2022, at 08:06 AM GMT) with a lower double-digit upside potential based on 18.59x Price/NTM Earnings (approx.) on FY23E earnings per share (approx.).

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’ 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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