Stock of the week: Tate & Lyle
Tate & Lyle, originally famous for its sugar refining business, is experiencing increasing demand for its products in the US market. The company has been a beneficiary of currency movements with 75% of its revenue generated from the US. Furthermore, the group is expecting increased sales from emerging markets and new products.
The group has expanded its business by providing innovative ingredient solutions for beverages, dairy-based products, soups and sauces due to a demand from consumers for healthier options. Its products include liquid sweeteners, texturants and stabiliser systems.
Interested investors should note the firm’s first quarter trading update in July stated that it had made an encouraging start to the year, with profit and volume ahead of last year. Encouragingly, the group expects to continue to make progress in the year ahead. Future prospects are for the Speciality Food division to contribute around 70% of group profits, emerging markets to generate 30% of sales and $200m of sales from new products by 2020.
There is a hope for an improvement in the quality of earnings, as a result of some major structural change initiatives from management. We recommend the stock as a ‘buy’ for investors willing to accept a medium-to-high level of risk.
Furthermore, we suggest investors build a holding over time, as the stock has been volatile over the past year. Investors should appreciate that Tate & Lyle has the added attraction of a 4.2% prospective yield.