Tate & Lyle (LSE: TATE) has today issued its third profit warning in the last year, with the company stating in its quarterly update that profit for the full year will be modestly below previous guidance. As a result, its shares have fallen by 14% and are now trading 23% lower than they were just 12 months ago.
Mixed Performance
While Tate & Lyle’s Speciality Food Ingredients business performed in line with expectations in the third quarter of the year, with solid growth in Europe and in Asia helping to grow volumes versus last year, its Bulk Ingredients division disappointed. That was mostly because of the impact of lower US sweetener volumes due in part to the capacity constraints in the wider US transportation network, as well as weakening EU sugar prices that affected bulk sweetener prices in Europe and a significant deterioration in ethanol margins towards the end of the period.
Clearly, these issues are industry-related and, looking ahead, Tate & Lyle appears to be in a better position than previously to dampen the impact of commodities volatility on its results. For example, it has progressively re-positioned its Bulk Ingredients business so that tolling contracts now represent roughly 75% of US corn sweetener volumes. Furthermore, lower volumes for the remaining 25% of corn sweetener volumes are set to be offset in the fourth quarter of the current year and into next year by higher unit margins.
Looking Ahead
Clearly, the update is a disappointment for investors in Tate & Lyle and caps a tough year for the company, with it experiencing a series of profit warnings during the period. However, it remains a sound business with a solid long term future, and could be worth buying at the present time. That’s because it continues to offer good value for money with, for example, its shares trading on a price to earnings (P/E) ratio of 14.9 and being expected to deliver earnings growth of 18% next year.
So, even if earnings forecasts are downgraded following today’s update, there seems to be a considerable margin of safety included in Tate & Lyle’s share price, which means that it could still be a strong long term performer. In addition, Tate & Lyle also offers a dividend yield of 5% at its current share price, which puts it in the top decile of FTSE 250 stocks when it comes to income appeal.
This mix of income, growth potential, and reasonable value mean that Tate & Lyle could be worth buying at the present time. Certainly, investor sentiment has been hit hard by today’s profit warning and, as such, its share price could come under further pressure in the short term. However, for longer term investors, it appears to be a relatively appealing stock to buy at the present time.
