During 2018, Tate & Lyle (LSE: TATE) has been celebrating the company’s 140th birthday at the Thames Refinery in Silvertown. When Henry Tate, a shopkeeper from Liverpool, opened the first sugar refinery in 1878, the same year the light bulb was invented and Cleopatra’s Needle was raised onto its base in London, he probably could not have foreseen how the company and the industry would develop over the years.
On November 8, the company’s half-year results showed a small profit increase and the management maintained its future outlook. Yet analysts pointed out the lack of real growth in the otherwise strong fundamental story. So what should we expect from Tate & Lyle?
When will Tate & Lyle start to grow again?
Although shoppers tend to visualise the Tate & Lyle brand with packs of sugar in supermarket aisles, the company’s primary focus is on producing sweeteners and other bulk ingredients for food manufacturers. Tate & Lyle are the exclusive UK producers of the Splenda artificial sweetener.
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Within the past few years, investors have been quite concerned about the prospects of TATE shares over profit warnings and a managerial approach that has not given a clear indication as to how the company would grow.
Then, with CEO Nick Hampton at the helm, came a range of recent cost-cutting measures and productivity increases – providing a positive momentum to the share price. Sales in the Americas, as well as the Far East, have also been going up and the rising price of commodities has given a boost to profits. As a result, TATE shares have bounced off their March lows and are now holding above 700p.
Tate & Lyle are likely to be one of the companies to benefit from consumers’ changing habits as shoppers move away from sugar and towards healthier food and drink options, especially in the US – the company’s largest market. Moreover, the sugar tax that came into effect in the UK in April 2018 is likely to help TATE increase revenues, as Splenda is replacing aspartame and saccharine in low-calorie drinks.
TATE’s healthy balance sheet also gives the company various options to make acquisitions in niche health food markets – a move that would help grow its portfolio. In other words, before too long, TATE bulls will probably be proven right to believe in the management’s commitment to create shareholder value and to grow the company both organically and through acquisitions.
Reinvesting the sweet dividend yield of TATE shares
Despite the lack of current growth at TATE, its dividends make the shares attractive. TATE’s dividend yield is over 4% – another reason why I believe Tate & Lyle shares belong to a capital-growth portfolio. The next dividend payment is scheduled for early January 2019 to shareholders of record on Thursday, November 22nd.
The bottom line on TATE shares
TATE shares have been flat over the past 12 months. During 2019, I expect the shares to trade between 650-750p. Within 4-5 years both value and dividend growth investors are likely to be rewarded handsomely. By then the company could even become a bid target by other food manufacturers.
