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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 |
£ 5.701 |
15/06/2006 |
|
0875413 |
Buy |
£ 5.597 |
25/04/2006 |
|
0875413 |
Buy |
£ 4.897 |
09/11/2005 |
|
0875413 |
Buy |
£ 4.65 |
19/10/2005 |
|
0875413 |
Buy |
£ 4.628 |
26/09/2005 | |
