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Home / Blog / blog / Company Focus || Has pandemic turned sugar shares sour? || 7-5-2020

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Company Focus || Has pandemic turned sugar shares sour? || 7-5-2020

Share prices turned sour for sugar manufacturer Tate & Lyle, falling 3.7 per cent at one point this week, after it revealed its latest trading update.

It disclosed that while sales for its at-home store cupboard products had spiked at the beginning of April, uptake for its bulk sweeteners, used in soft drinks in restaurants, bars and cinemas had slumped by 26 per cent. One of Tate and Lyle’s main markets is the US, so its first full month of leisure closures has hit the company hard.

The sugar producer does not announce its full year results until the 21st May, but its trading update revealed that last year it performed well with ‘each trading division exceeding the prior year’s performance.’ This wasn’t enough to sweeten the deal for investors though with share prices now standing at 641.60p at the time of writing.

So, can Tate and Lyle regain its footing or is coronavirus likely to lead to crisis for the household name?

The closure of bars, restaurants, cinemas and public events has undoubtedly had a big impact on Tate and Lyle’s figures, as its bulk sweeteners make up around 40 per cent of its income.

Chief Executive, Nick Hampton, was upbeat though saying in his statement: “Tate & Lyle is a resilient business that meets challenges head-on.  I am confident that with the strength of our portfolio, people and operating capabilities we will navigate this period successfully and that our future prospects remain strong.”

Analysts were similarly optimistic about the sugar producer’s long term outlook  – Jefferies retained its ‘buy’ recommendation and 720p target price on the stock with analyst Martin Deboo saying that while the latest update  ‘feels directionally adverse to that and will hurt profits in what is an operationally geared business’ he thinks the balance sheet is more than robust enough to take it’.

Berenberg upped its target price from 625p to 665p, although it did cut its group volume forecasts by five per cent for 2021 and earnings per share forecast for the same period was slashed by 20 per cent.

The analysts said: As with peers, where Tate’s FY 2021 earnings ultimately land will depend on the time frame of lockdowns and subsequent easing measures. However, with significant divisional exposure to out-of-home consumption (20-50%) and some industrial end-markets, Tate’s earnings are particularly sensitive, and we expect no rapid bounce back in volumes after Q1.”

Others have pointed out that the 99-year old firm has a long history and a robust track record of a good dividend yield. Its stock has grown 75 per cent over the past decade and it has a 4.4 per cent yield, leading some analysts to view it as a dependable, long-term investment despite the current crisis.

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