Nick Hampton, Tate & Lyle’s finance director and, since yesterday, its chief executive-designate, joined the former sugar refiner in the teeth of a crisis. It had sold the loss-making sugar business that still bears its name four years earlier and had pinned its future on corn sweeteners and industrial starches.
The strategy of moving into higher-margin speciality products proved a success, until Chinese producers began flooding the market with sucralose. Profit warnings followed and Mr Hampton, 50, became a key member of the stabilisation team. Working with Javed Ahmed, who will hand him the reins in April, he focused on shoring up the finances. His elevation is a reward for a job well done.
When Mr Hampton arrived in 2014, the 159-year-old company could barely pay the dividend, which was barely 0.2 times covered by free cashflow. This year it is forecast to be 1.5 times. The balance sheet is prudent, providing comfort for the pension trustees with an eye on the £140 million deficit.
Tate & Lyle has two businesses: bulk high-fructose corn syrup, which produces the sugary flavourings for soft drinks, including Mr Hampton’s old employer Pepsi; and speciality ingredients like starches for the fast-growing health-conscious market.
Bulk generates the cash, with a profit margin of about 7 per cent. Speciality generates the returns, with margins that hit 20.4 per cent in the first half. The plan is to shift from bulk to speciality to reflect changing consumer demand.
Mr Hampton has established solid controls. Tate & Lyle locks in costs by hedging out energy and commodity risks. The upside is generated by product innovation in its Chicago development hub.
President Trump has been weighing on the share price. More than half the business is in America, largely in bulk, and a renegotiation of the North American Free Trade Agreement could cause a supply overhang and crash prices. Shares in Tate & Lyle reached 780p last year before Nafta talks sent them 10 per cent lower. A bounce in the pound is also a risk as sales are in dollars and euros.
For the brave, this could be an opportunity if Nafta is resolved. Mr Trump’s tax cuts are also likely to lift profits. In the longer term, Tate & Lyle is well-placed for the shift to higher-margin ingredients and is diversifying into Asia.
At 12.7 times 2018 earnings on Liberum’s forecast and a dividend yield of 4.4 per cent, with a price of 689¼p the stock is cheap compared with its peers.
ADVICE Buy
WHY For those prepared to take a risk and who are happy to be patient, this is a stock that is cheaper than its peers
The Gym Group
Frank Field’s attack on the large, low-cost gym operators over gig economy-style employment practices has riled the top brass at The Gym Group. Richard Darwin, the chain’s chief financial officer, accused the MP of using “inflammatory language” and said that the use of self-employed personal trainers was within the regulations. He expressed the hope that, having responded to Mr Field’s questions, “maybe he’ll leave us alone”.
As it happens, The Gym Group is running a trial scheme offering personal trainers part-time employment for 12 hours a week alongside their self-employed work. If successful, it plans to roll out the scheme across all 129 clubs.
In the meantime, trading remains strong. In a full-year update, the group reported a 24.3 per cent jump in revenues after 21 openings and the acquisition of 18 sites. Memberships rose by more than 33 per cent to 607,000. As a result, earnings would be in line with expectations, sending the shares up 5½p to 232½p.
The result of all this activity was a jump in its share of the low-cost gym market from 17.7 per cent to 22.4 per cent. And it’s not done yet. The group will open 15 to 20 clubs this year and is keeping half an eye on eventual expansion overseas.
ADVICE Buy
WHY The shares have plenty of upside
Ashmore
Asset managers are the great hope of many in financial services. With banks and insurers pinned down by the need to hold huge amounts of capital while regulators circle and politicians decry bonuses, asset management seems like the sunny uplands.
For some, it has proved to be. Schroders, for example, grew into one of Britain’s leading fund managers without making significant acquisitions. Others are struggling owing to their awkward size. That has driven tie-ups, including between Standard Life and Aberdeen.
Ashmore’s position is reasonably comfortable. The emerging markets specialist has benefited from the rebound in its markets. Yesterday it reported net inflows of $3.6 billion in the three months to the end of December. Those, plus a $900 million positive investment performance, lifted its assets under management by 7 per cent quarter-on-quarter to $69.5 billion. That makes $7.9 billion of net inflows for the past half-year, likely to push up forecasts for its annual performance.
Mark Coombs, chief executive, predicted that the good times would continue to roll. He said: “The next phase of the cycle should see institutional flows stimulating domestic demand and so provide for continued attractive returns, particularly from local currency-denominated assets, including equities.”
The picture looks healthy, but investors should remember that flows in fund management, especially when operating in emerging markets, can be volatile. Moreover, the industry is struggling with how to implement Europe’s sweeping Mifid II regulatory reforms. Ashmore has said that it will cover the cost of external investment advice rather than passing it on to clients.
Ashmore is well-run, but it already trades at premium to its peers. Its price is close to the 2013 peak, when it had $77 billion of assets under management. Such a rating means that Ashmore will have to continue to grow at its recent pace, which seems unlikely.
ADVICE Sell
WHY There is too much risk that its rating will fall
