Tate & Lyle Results in Line With Forecasts
Guardian Web -- November 6, 2009 -- Say Tate and Lyle and most people think of sugar. But this is exactly the business which some believe the company, under new chief executive Javed Ahmed, could profitably get rid of.PAID ADVERTISEMENT
But analysts are keen to hear what innovative moves - if any - Ahmed may have planned. Graham Jones at Panmure Gordon said:
Of key interest is whether Javed Ahmed makes any strategic changes (such as exiting Sugar to focus on Ingredients Americas and Sucralose), but we think any announcements are more likely to come with the full-year results in May.
Jones kept his hold rating on the shares but raised his target price from 400p to 450p to reflect a lower tax rate this year and a better outlook for corn sweeteners next year. As for what the new chief executive did say - as opposed to what he might say - this seems to have gone down reasonably well in the City. Tate's shares are currently 5.1p higher at 462p. Warren Ackerman at Evolution Securities said
This is the first set of results from the new chief executive and [it was] pleasing to hear in his opening comments the continued focus on net debt, reducing costs, optimising working capital and reducing capital expenditure.
We have long said that you look to buy Tate when it stops investing and sell it when it invests as its track record on generating returns is poor. Prior to this year, Tate had invested £1bn in capex cumulative in the last four years. This was equivalent to 2.7 times depreciation. Going forward the capex guidance is 0.7 times to 1 times depreciation.
The first half results are in line with consensus at all levels of the P&L. Free cash flow looks ahead of expectations. Guidance had been for £200m of full year free cash flow pre-working capital. It is already £258m (post working capital) in the first half. This is driving a significant reduction in net debt from £1.2bn to £987m which will continue to give the market confidence on the sustainability of the dividend. The stock has had a good run but this free cash flow performance could drive the re-rating further.
At the moment, though, he has a neutral rating with a 385p target price.
(c) 2009 Guardian Newspapers Limited.
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