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Tate & Lyle - price hikes drive healthy growth

Tate & Lyle reported full-year revenue of nearly £1.8bn, reflecting underlying growth of 18%.

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Tate & Lyle reported full-year revenue of nearly £1.8bn, reflecting underlying growth of 18%. Higher prices were the key growth driver, more than offsetting an 11% volume decline. Food & Beverage Solutions was the standout division.

Underlying cash profit (EBITDA) rose 22% to £320m, with cost inflation offset by pricing and cost savings.

Free cash flow improved by £47m to £119m. Net debt more than halved to £238m, with the balance sheet benefiting from the disposal of a controlling stake in Primient.

For the new year, revenue is expected to grow 4-6%, with a 7-9% rise in underlying cash profit.

The board has recommended a final dividend of 13.1p, up 2.5%.

The shares rose 2.2% in early trading.

View the latest Tate & Lyle share price and how to deal

Our view

The new and refreshed Tate & Lyle delivered strong results despite a challenging backdrop. Mammoth price hikes may have caused volumes to dip, but that won't be much of a worry given the big jump in cash profit, and there's more wiggle room built into contract pricing, should it be needed.

The outlook was positive too. Revenue and profit are expected to grow in line with the medium-term targets next year - that should be a tick higher than analysts were forecasting.

The Group's making good on its promise to streamline operations and focus on the most profitable parts of the business. The margin benefits are already being seen, an underlying cash profit (EBITDA) margin of 18.3% over the year was a step up.

There are some challenges, Tate's heavy reliance on corn to make its products, and given that's a key export for Ukraine, means pricing uncertainty will be a risk moving forward. Cost-saving efforts should help with this, and the efficiency programme is years ahead of schedule.

But passing these costs on to customers is often the most effective way to help mitigate inflation. So far, the Group's been able to do this, and its focus on cleaner, healthier ingredients - a market that's gaining momentum - should help support demand despite charging higher prices.

The focus on a growing market is a positive step in our view. Acquisitions are a key part of this plan. The purchase of Quantum, a Chinese dietary fibre maker, is an example of this. While we're supportive overall and can't deny the growth opportunity, execution risk hangs heady in a Chinese market that's seeing prolonged uncertainty.

The sale of Primary Products, now in the form of a joint venture called Primient, was part of the solutions led revamp. Retaining a large stake means Tate still has interests here. Last year was tricky, with performance hurt by operational challenges and higher costs. But demand looks robust, and a successful round of price hikes means the outlook is promising. This'll be a key driver of cash flow as dividends from Primient get passed on to Tate.

At first glance, the new strategy looks to be progressing well. If management can navigate the increasingly challenging environment, Tate looks to be in a strong position. The valuation, roughly 14 times expected earnings, isn't too demanding. But it's beyond the long-term average, so there's an expectation to deliver, and there are no promises.

Tate & Lyle key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 25th May 2023