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Tate and smile?

By Chris Bailey | Friday 9 February 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

A Thursday in the middle of both a general corporate earnings disclosure frenzy and a market rout always throws up a few questionable share price reactions. I am wondering if one of these was the reaction by Tate & Lyle (TATE) shares which have fallen from 650p to around 600p at the time of writing.

So what was said in this disastrous statement by the ingredients solutions company which if memory serves me right has gone in or out of the FTSE-100 a cool twelve times and which has been a bit of a loser from the EU sugar tariff regime? Well the short trading update out on Thursday starts innocently enough with an observation that the company 'remains on track to deliver progress in adjusted profit before line with guidance'. Yes, very boring.

In the historically desperately cyclical Bulk Ingredients business (think high fructose corn syrup which goes into a bunch of mainstream fizzy drinks) 'growth is robust' and the annual pricing round is delivering akin margins to last year. That does not sound like a particular disaster. Then in the more higher value Speciality Food Ingredients - which includes the sugar substitute Splenda Sucralose – the company mused about 'good volume growth' and that tiresome but reassuring 'profit in line with the comparative period' comment.

But then we come to the no doubt worrisome comment that has irked the market: profit growth in the Speciality Food Ingredients business will be moderated in the second half following a decision to 'invest behind the longer term development of the business'.

Hmm. Getting those large consumer staples names to play ball with new products is never easy and whilst it may find - via local emerging market production facilities - easier scope to grow in the more economically developing world, we all know the big US names are the crucial constituency. More lobbying, more product development and more hit n hope.

This is a shame as a six quid level puts the stock close to a 5% dividend yield and a sub ten times EV/ebit ratio. For me, this makes it a watch list only name today. The numbers in May will give more clarity but for punters the 550s is one level to write down.

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