Science Group PLC and Tate & Lyle PLC: Prudent Business Initiatives Unveiled by Two FTSE Listed Companies

As the United Kingdom market is likely to retreat on 4^th May 2020 through the spat between the US and China over the Covid-19 infection, some companies are announcing their trading updates. Overall, it has been observed that the Companies have been retaining a robust balance sheet position and sustaining the business cautiously to weather the uncertainties presented by the Coronavirus mayhem. Today, we are going to discuss two FTSE listed stocks from diverse industry – Science Group PLC (LON:SAG) and Tate & Lyle PLC (LON:TATE) as both the Companies have released its respective trading update, today. Following the business updates, the price of SAG plunged around 9.5 per cent, and TATE dipped over 2.8 per cent (at the time of writing, GMT 9:05 AM). Let’s walk through the fundamentals of these two Companies, and understand their respective business capabilities, financial position, and outlook to gauge the magnitude of their latest trading updates.

Science Group PLC (LON:SAG)

Science Group PLC is a FTSE AIM-listed company, which is engaged in consulting services. The Company enables the clients to deliver on investments in Research and Development (R&D). Its services include product development, applied science, regulatory and advisory. The key market vertical comprises Food & Beverage, Medical, Industrial, Consumer, Oil & Gas and Chemical. It operates through a workforce of over 400 people, offices throughout North America and Europe, to provide support in 30 languages to a client base in more than 100 countries.

(Source: Company Website)

Capabilities to Support Product Innovation Lifecycle

• Applied science: Provides consulting services through extensive support of engineers and scientist to solve R&D challenges.
• Advisory services: Provides advisory through scientist and researchers to tap new opportunities and solve technical issues to accelerate initiatives for R&D innovation.
• Product development: Provides support across stages of the product development lifecycle to develop innovative and competitive products and technologies.
• Regulatory services: Enable its clients to navigate through the complexity of regulatory frameworks.

Significant Regulatory Updates of 2020

• 31^st March 2020: The Group commenced the production of the Sagentia Ventilator, under the programme funded by the UK government.
• 20^th March 2020: SAG repurchased its own 5,000 shares through Liberum Capital Limited at an average price per share of 180 pence.
• 6^th January 2020: The Company appointed Liberum Capital Limited as a joint broker with immediate effect.

Business Update (as on 4^th May 2020) – Representing Ventilator Programme, Trading and Financial Update, with Decent Balance Sheet

• As earlier announced on 31^st March 2020, Sagentia unit (a product development business), had been involved on the UK Government's RMVS (Rapidly Manufactured Ventilator System) initiative. However, Science Group states on 4^th May 2020; it was improbable that its Sagentia unit would end up completing the manufacture of ventilators for the United Kingdom government, despite having already started making the devices.
• The group stays committed to providing whatever assistance to the UK government is required in the fight against the Covid-19 pandemic.
• For the first quarter of 2020, the company’s trading was broadly in line with the Board's anticipations. This reflects a good foundation for the full year.
• The company delivered a decent balance sheet, with Group’s gross cash stood at £17.5 million, net cash, excluding client-held funds, was stated at £1.5 million as at 30^th April 2020. It further stated that the bank loan is secured and not subject to operating covenant until the net debts exceeds £10 million.
• The management of the company has decided to take prudent action to top-up the bank loan back to the maximum level of 17.5 million pounds on similar terms. When it is completed, this will provide around £1.5 million of additional gross cash.

Share Price Performance

Daily Chart as of May 4th, 2020, before the market close (Source: EODHD/Others, Thomson Reuters)

SAG’s shares were trading at GBX 173.55 on 4^th May 2020 (before the market close at 8:53 AM GMT+1). Stock's 52 weeks High is GBX 255.00 and Low is GBX 161.00.

Short Term Scenario

In the financial year 2020, the company has performed decently and expect to carry the same momentum in the financial year ending 31st December 2020. Since 2010, Science Group has delivered significant growth in Revenue and Adjusted Operating Profit without shareholder dilution. Recently, the company has completed the acquisition with Frontier Smart Technologies Group. Group maintains a decent balance sheet, with significant freehold property assets which provide security for long-term debt. While the future impact of Coronavirus on the world economy stays uncertain. The group’s Board stays cautious in the short-term but confident in the long-term prospects of SAG.

Tate & Lyle PLC (LON:TATE)

Tate & Lyle PLC is a FTSE 250 listed company, which provides ingredients and solutions for food, industrial and beverages markets. The Company was formed in 1921, and today, it serves in more than 120 countries, with over 4,100 employees and 18 laboratories. It has offices, labs and plants in over 30 countries.

(Source: Annual Report, Company Website)

Business Divisions and their Capabilities

Tate & Lyle PLC operates through two major segments - Food & Beverage Solutions and Primary Products. The food and beverage contribute nearly 70 per cent of its total sales.

• Vital Food & Beverage Solutions: Comprises production of texturants, specialty starches, sweeteners, several Health and Wellness products such as speciality fibres, stabilizers & functional systems.
• Key Primary Products: Sweeteners, starches, and fermentation products (primarily acidulants). Additionally, it produces and markets byproducts of the corn milling process.

Vital Developments of 2020

• 20^th April 2020: The Company had received claims approval against PROMITOR® Soluble Fibre functional from the Brazilian Health Regulatory Agency (Anvisa).
• 11^th March 2020: The Group launched CLARIA EVERLAST® (starch that provides shelf stability) and thus bolstered its primary products division.
• 12^th February 2020: The Company embarked into the personal care category through TEXTURLUX® Personal Care Additives.
• 4^th February 2020: The Group partnered with Zymtronix for the development of the enzyme immobilization platform for producing the desired ingredients.

Trading Update (as on 4^th May 2020) – Well-Positioned with Volume for Food & Beverage Solutions in Line and Reflected Decent Financial Position & Balance Sheet

• Today, the company provides a trading statement for April 2020 in relation to Coronavirus developments. During the financial year 2020, the group is on-track, with each trading division exceeding the previous year's performance. For FY20, the group expects the performance is slightly ahead of the guidance coming into the year. It will announce its results for the year ended 31 March 2020 on 21 May 2020.
• In March 2020, the company witnessed a slight impact of COVID-19. But throughout April 2020, it led to some significant changes in demand patterns for the products, majorly in the US and Europe markets.
• In the Food & Beverage Solutions and Sucralose, the company has continued to perform well in April 2020, with Sucralose was 18 per cent higher due to phasing of customer orders and volume for Food & Beverage Solutions in line against the same period last year. For this division, the company is showing a robust demand at the start of April 2020, but as the month progressed, it showed lower demand for products consumed out-of-home, due to lockdowns in place in many countries across the world.
• During April 2020, the volume of the primary products was substantially impacted by the first full month of lockdown in the United States. In the same period, the bulk sweetener volume was 26 per cent lower, and industrial starch volume was 9 per cent lower. Led by ethanol prices decreased sharply, the commodities were also impacted.
• The business delivered decent financial position and balance sheet, with net debt / EBITDA of 0.9x at 31 March 2020 and access to more than US$1 billion through a revolving credit facility cash on hand.
• Also, the company has no debt maturity until 2023 and substantial covenant headroom on borrowings.

Share Price Performance

Daily Chart as of May 4th, 2020, before the market close (Source: EODHD/Others, Thomson Reuters)

TATE’s shares were trading at GBX 679.20 on 4^th May 2020 (before the market close at 8:57 AM GMT+1). Stock's 52 weeks High is GBX 811.40 and Low is GBX 493.83.

Business Outlook Scenario

The Company’s guidance for the fiscal year ending 31 March 2020 remains unchanged. In all its businesses, sales and adjusted operating profit were ahead of the same period last year, which reflects good operational performance, solid performance in manufacturing and supply chain and good cost discipline. While the company reported that its four-year $100 million productivity programme was on track and reported a forecast-beating rise in first-half operating profit. TATE is a resilient business that meets challenges head-on and will also remain decent.