How will Tate & Lyle perform after making two key acquisitions?

Summary

• Tate & Lyle Plc has reported a revenue contraction of 4.0% during H1 FY21.
• The Company announced the acquisition of Sweet Green Fields on 01 December 2020.
• The adjusted net debt/EBITDA stood at 0.7x during H1 FY21.
• The Company announced an interim dividend of 8.8 pence per share to be paid on 06 January 2021.

Tate & Lyle Plc (LON:TATE) is the LSE listed consumer discretionary stock. Based on its 1-year performance, shares of TATE have generated a return of -10.10%. Shares of TATE were down by close to 0.12% from the last closing price (as on 03 December 2020, before the market close at 08:10 AM GMT).

Tate & Lyle Plc is the FTSE 250 listed Company, which is the global provider of food and beverage ingredients and solutions. The reportable business segments are Speciality Food Ingredients and Bulk Ingredients. The Company is a producer of nutritive sweeteners, industrial starches used in paper and packaging, acidulants and products used for animal nutrition.

Upcoming Events – The Company will announce its third-quarter trading update on 28 January 2021.

Speciality Food Industry Overview

The speciality food industry is demonstrating profitable growth boosted by the growing demand for plant-based meat products either for a healthy lifestyle or for clinical purpose. The players from this industry sell product like meat, fruits & vegetables and baked goods more often specializing in that particular product category. The speciality food industry and processed F&B industry are strongly correlated. The specialist food market is driven by various factors such as advanced technology, nutrition and taste convergence, growth in the convenience food sector, and rising end-user applications.

Recent Developments

01 December 2020: Acquisition of Sweet Green Fields 

On 01 December 2020, the Company announced its acquisition of Sweet Green Fields (SGF) which is a leading global stevia solution business. The Company has started its collaboration with SGF in 2017 and became the exclusive global distributor of SGF's portfolio of stevia-based ingredients. Later, it has acquired a 15% stake in SGF. The revenue of SGF for FY20 is anticipated to be around US$50 million, including revenue for products Tate & Lyle currently sells as a distribution agent.

The stevia division revenues of the Company surged by 23% for FY20 ended on 31 March 2020 while new product launches containing stevia at the global level also grew at CAGR of 15% from 2015 to 2019, making it an important contributor to New Products revenue growth.

H1 FY21 results (ended 30 September 2020) as reported on 05 November 2020.

(Source: Company result)

• The adjusted revenue of the Company has declined by 4.0% to £1,389 million during H1 FY21 from £1,476.0 million for H1 FY20.
• Food & Beverage solution has shown a growth of 1% driven by stronger demand for packaged and shelf-stable foods for consumption in-home offset by the reduced demand for ingredients used in the food and drink consumed out-of-home.
• Similarly, adjusted profit before tax was declined by £1 million to £180 million during H1 FY21 from £181 million for H1 FY20.
• The diluted earning per share has increased by 9.0% to 32.1 pence per share for H1 FY21.
• Regarding the financial position, the net debt of the Company stood at £358 million as of 30 September 2020, which was £93 million lower than at 31 March 2020. The Group had US$800 million of undrawn revolving credit facilities which mature in 2025. The Company is having cash and cash equivalents of £484 million as of 30 September 2020.
• The Company has announced an interim dividend of 8.8 pence per share totalling to around £41.0 million to be paid on 06 January 2021.
• The Company has adjusted free cash flow of £194.0 million during H1 FY21 while it was £171.0 million for H1 FY20 reflecting strong working capital management and lower retirement benefit contributions.
• The net debt/EBITDA stood at 0.7x as of 30 September 2020 while it was 0.9x as of 31 March 2020. 

28 October 2020: Acquisition of Chaodee Modified Starch Co. (CMS)

On 28 October 2020, the Company announced its acquisition of Chaodee Modified Starch (CMS) which is a well-known tapioca modified food starch manufacturer located in Thailand. The Company has updated that it is going to acquire an 85% shareholding in CMS and subsequently, signed an agreement. Thailand is having an output of over 90% of tapioca starch globally and hence, known as the hub for tapioca production.

07 October 2020: Directorate Change.

The Company announced that Imran Nawaz would quit and join Tesco Plc as the Chief Financial Officer.  He will continue to stay with Tate & Lyle until April 2021 to close out the current financial year.

Share Price Performance Analysis of Tate & Lyle Plc

(Source: EODHD/Others, chart created by Kalkine group)

Shares of Tate & Lyle Plc were trading at GBX 652.40 and were down by close to 0.12% against the previous closing price as on 03 December 2020, (before the market close at 08:10 AM GMT).TATE's 52-week High and Low were GBX 811.40 and GBX 493.83, respectively. Tate & Lyle Plc had a market capitalization of around £3.06 billion.

Business Outlook

The Company has estimated its capital expenditure for FY21 to be ranging from £140 million to £160 million. The Company has not given any profit guidance for the financial year ending on 31 March 2021 due to considerable uncertainty. The investment in speciality tapioca food starch business in Thailand will enable the Company to penetrate new geographies across the Asia Pacific and expand its customer base in categories like dairy, bakery, snacks and soups. The Company did not seek any furlough support from the government amid Covid-19 pandemic.