Darren Shirley and Clive Black, analysts at Shore Capital, said that Tate “is in good hands, to our minds” under ceo Javed Ahmed.
But discussing the firm’s ‘focus, fix and grow’ strategy, the analysts said they “awaited progress on how ‘grow’ splits between organic and in-house led development, versus acquisitions”.
“The latter, we sense, will increasingly feature down the line, supported by a strong balance sheet,” they said.
Tate & Lyle, which makes speciality sweeteners, including zero-calorie sweetener Splenda (sucralose), noted an encouraging start to its new financial year in the update, which covers April 1 to June 30.
Speciality ingredient growth
The company said it expected another year of profitable growth, given growing demand for its speciality ingredients and Splenda in particular. Shore Capital predicted 6-7% volume sales growth for the full year 2010/11.
In Europe, Tate’s sweetener margins were hit by higher raw material costs, while citric acid sales were lower than expected in a more competitive market.
"Overall, our expectations for the full year remain unchanged and we continue to anticipate another year of profitable growth," the group said.
After disposals including EU and Vietnamese sugar, and molasses, Shore Capital noted Tate’s evolution towards speciality food ingredients and solutions, “augmented by the sustained cash generation from operating a disciplined and better-constituted … bulk ingredients activity”.
To fulfil these objectives, Shirley and Black said Tate was engaging in background work on a simpler and more efficient central overhead system with a common operating platform, as well as stronger innovative and commercial development capabilities.
“Management sees a market in specialty food ingredients that is expected to grow at circa. 5% per annum and has attractive margin credentials,” the analysts said.
“In Tate's speciality food ingredients division, the attractive nature of the markets is reflected in a 25%+ return on sales, versus circa. 8% in bulk ingredients,” they added.
Pension fund deficit
Analyst Graham Jones of Panmure Gordon said that Tate's trading statement read “pretty well”, but identified food systems, European sweeteners and citric acid as weak areas.
Tate & Lyle also revealed plans to tackle its main UK pension scheme deficit, which stood at £88m as of March 31 2010.
Following the sale of its UK sugar and molasses businesses last year, Tate will inject £45m of cash proceeds into the scheme by March 31 2012.
Thereafter, the balance of the deficit will be paid at an annual rate of £12m.
Tate & Lyle was not available to comment as we went to press.