Uk Stock Writeups

The sugar and sucralose producer has been sold; the former is of minor interest, the latter a world-beating, unique product for use in many ingredients (essentially because, whether heated or chilled, its flavour does not change nor does it combine with other ingredients resulting in a change of taste). Management however have suffered from hubris, over-expansion, and a series of profit warnings in 2007. Subsequently the business stabilised and has started to grow again; the share price responded accordingly, assisted by a break-up specialist appearing on the register, resulting in a 20% plus rise against a weak market. Having hit its new price target, there was no further reason to hang on.

Tate & Lyle is currently seeing strong earnings growth from its patented Splenda Sucralose product; with demand currently far outstripping their capacity they are able to generate high prices and margins for this product. Many are wary that this growth is not sustainable; we would agree that over the medium term a competitive and effective substitute product will likely come to market, but it will likely take at least 3 years for this to occur and in the meantime the robustness of Tate & Lyle's patents has been proven by Wal-Mart's back-down after it attempted to sell Splenda as an own brand product. The market is well aware of the negative impact that the new EU sugar regime will have on Tate & Lyle's core business; yet again this is not a major threat to near term profits. Even assuming continued margin decline and zero sales growth in the core business, we believe that the current share price does not adequately reflect the strength of the Splenda Sucralose business and on a sum of the parts basis we see sufficient upside to warrant this a BUY.

Sedol	Type	Price	Date
0875413	Sell	£ 4.824	05/02/2008
0875413	Buy	£ 5.651	26/05/2006
0875413	Buy	£ 5.597	25/04/2006
0875413	Buy	£ 4.897	09/11/2005
0875413	Buy	£ 4.628	26/09/2005

The sale was driven by two events. The first was a decision by management not to pay dividends from their significant cash pile, preferring to use the money to execute a buy-back programme and to reinvest in acquisitions; we considered such a course inappropriate. The second was the announcement of a cancelled BBC contract in its June trading update. This had previously been highlighted as an important part of the company's future growth.

Tinopolis (formerly TV Corp) is one of the UK's largest independent suppliers of programmes to broadcasters. The company has been restructuring in recent years (selling off loss-making businesses and changing senior management). However, the real catalyst for the stock was new legislation in the UK that requires the TV companies (BBC, ITV etc) to use independent TV producers for at least 25% of their programmes. The TV companies have spent much of 2004 assessing the full impact of the new Communications Act, but are now beginning to change their behaviour and start awarding new contracts to companies such as TV Corp. It is one of a handful of UK independent programme producers, and with the recent legislation stimulating interest in the sector again we believe the sector is ripe for consolidation. The 2004 interims from TV Corp showed it is turning the corner with improving profitability and several major long term contract announcements. Assuming a fairly modest success rate in new contract wins, the company's FCF is set to explode in 2005, yielding over 10% at the current share price. The company's restructuring in recent years also included restoring a battered balance sheet, so with its own finances now in order and earnings prospects rapidly improving the stock fits the self funding takeover model well.

Sedol	Type	Price	Date
0936569	Sell	£ 0.35	15/06/2007
0936569	Buy	£ 0.37	14/12/2006
0936569	Buy	£ 0.37	13/12/2006
0936569	Buy	£ 0.366	12/12/2006
0936569	Buy	£ 0.338	15/06/2006

Very dependent on a small number of government contracts; the sudden, unexpected loss of one the previous month, coupled with the likelihood that many departments will be forced to curb expenditure, puts the group's earnings at risk as the economy turns down.

Tribal Group provides support services primarily into the UK public sector (health, education, local/central govt). The share price has fallen by >50% in the last 18 months on contract delays & the gradual erosion of what were very high margins (20%+). In Dec 04 they finally announced a major, long-awaited £214m 5 year contract with the NHS and have a number of cost cutting initiatives to address the business lines under most pressure. Despite this we assume that margins will continue to erode gradually across most of its activities from hereon in due to increased competition.

However, the company is in a sweet-spot as the government is clearly aiming to get the national and local health/education services to use the private sector (from around 7-8% now to 15% in the medium term). Tribal Group should be in a position to benefit from this trend. Given the company has shown it can win major contracts in what is a growing market and is addressing some of the under-performing business lines then we believe that the current share weakness represents a good entry point. The share is trading at 0.6x its book value whilst generating a RoE of 8.5%. The FCF yield is > 10% once a major NHS contract funding has been completed and the forward PE is a modest 7.3x. Even assuming some further margin decline, this is a value play in an attractive sector.

Sedol	Type	Price	Date
3018152	Sell	£ 1.063	14/01/2008
3018152	Buy	£ 1.973	13/12/2005
3018152	Buy	£ 1.77	21/06/2005
3018152	Buy	£ 1.33	10/03/2005