Tate & Lyle is arguably in a better position than it has been since the decision in 2010 to part company with Mr Cube and get rid of the sugar business. There have been a few slips on the way, as investors will be all too aware.
The aim is to use the profits from its bulk ingredients side, providing sweeteners to the US drinks industry, for example, to fund investment in speciality food ingredients, which is higher-growth and higher-margin.
Meanwhile, the bulk side should be made less cyclical and vulnerable to abrupt changes in corn sugar prices, and the rate of development of new food products must be stepped up. The company has put up some punchy milestones to be reached by 2020, such as getting 70 per cent of profits from speciality foods and $200 million of sales from new ingredients.
The halfway figures indicate progress on all fronts. They beat market forecasts, particularly on the bulk side, while new product sales were up by 18 per cent to $51 million, halfway there on an annualised basis.
Bulk is gaining from high demand for soft drinks in the US because of warm weather and a corn wet-milling industry, which produces those sweeteners, where supply is again in balance with demand. Tate also has the ability to hedge against future corn price movements.
Speciality ingredients saw some weakness in the US as the tough macroeconomic ingredients hit demand from food manufacturers. Against this, there was a £15 million extra profit from its Sucralose artifical sweetener, the source of much anguish in the past. About half of this probably came from the release of extra inventories after the closure of a factory in Singapore, while the fall in the price seems to be slowing.
The shares have been among the strongest beneficiaries from the weaker pound, as just 2 per cent of revenues are from the UK and the bulk in dollars. The second half will not see that surge from bulk, and the rise in the shares, up another 28½p to 807p despite sterling’s bounce yesterday, no longer offer the sort of strong yield seen earlier. Still, analysts were moving up their profit forecasts. The shares sell on about 18 times’ earnings; not cheap any more but attractive long-term if those targets can be hit.
My advice Buy
Why The shares are not cheap but Tate & Lyle appears well placed with plenty of opportuniity to grow its speciality foods business
GoCompare.com
There was some confusion surrounding esure as the market opened and trading in its former subsidiary, the price comparison website GoCompare.com, started. This is one of those cases, like Reckitt Benckiser’s spin-off of Indivior, the pharmaceuticals company, when investors get shares in each. The initial price reaction suggested esure had plunged by almost a third; it was just those GoCompare shares uncoupling.
It was never clear why esure, a straightforward insurer of cars and the like, wanted a price-comparison site, which, by definition, could steer traffic to its rivals. It took control of a business that had rather lost its way less than two years ago and brought back the opera singer Gio Compario, which raised visibility.
Revenues and profits are on the way up again, insurance revenues ahead by 20 per cent at the half-way stage. Investors in esure, who are probably in there for a decent dividend yield, now have a share in a high-tech growth company where dividends are at best uncertain.
On the other hand, GoCompare has the option of moving into other areas of insurance, as yet unspecified, while improving its current operation. ComparetheMarket.com, its slightly larger rival, is also heading for the stock market at some stage. GoCompare shares ended at 72¼p yesterday. As there is no official float price, there is no obvious comparison of how they performed. They sell on a reasonable 13 times’ earnings for 2017. Investors keen on yield should sell and look elsewhere; others should stay in for the ride.
My advice Hold
Why New investors should await developments
Schroders
The big asset managers’ experience since the Brexit vote has been mixed. Some have seen institutional flows holding up well but some retail investors have been heading for the exits. Schroders says its funds under management in the UK have held up well; in fact, net outflows more than halved from the first quarter of the year to the third, immediately after the vote.
This may be because the company is among the most diversified in the sector. It has launched a new range of products over the year which are bringing investors in. Across the group, funds under management held up well over the third quarter, helped by the fall of sterling, which contributed about £10 billion to a positive market performance of almost £26 billion.
Schroders is unusual in keeping about £1 billion of extra cash in the bank. Some have wondered if it simply had no idea what to do with this, though there have been small acquisitions. The shares have always been highly rated and, up 15p at £28.01 on figures that beat expectations, have recovered their post-referendum fall. On 16 times’ earnings and yielding 3.2 per cent, they look a bit expensive.
My advice Avoid
Why Good performance seems reflected in price
And finally . . .
It seems a long time ago that Tanzania, and the gas held offshore, was the most exciting thing happening for Ophir Energy. This week Royal Dutch Shell, which acquired the assets in last year’s takeover of BG Group, says it will be going ahead with two exploratory wells. There was always the prospect Shell might walk away, but there is a new government in the country keen to move ahead. Ophir has other interests and its stake in Tanzania is just 20 per cent; this week’s move makes a sale slightly more feasible long-term.
