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Should I Buy Tate & Lyle plc?

I’m out shopping for shares again. Should I add Tate & Lyle (LSE: TATE) to my wish list?

Big man Tate

I’ve always had a sweet tooth, except when it comes to investing. Last time I sized up speciality food ingredients company Tate & Lyle in February, I decided the share price was too sticky for my tastes. It had just reported a 26% drop in operating profits, due to rising fixed costs and tummy troubles in Europe, and growth prospects didn’t entice. Should I buy it today?

I was right to be sceptical. Tate & Lyle’s share price has trailed the FTSE 100 over the past 12 months, growing 8% against 12% for the index. And it has tumbled 12% in the past three months. Its recent half-year trading update reveal a drop in group operating profits, year on year, as a chilly spring and slow early summer hit the US beverage sector, knocking the company’s sweetener volumes. Stiff competition in the sucralose market added to the pressure.

Smile for Lyle

Yet these weren’t disastrous results. Performance was broadly in line with management expectations, with Tate & Lyle seeing strong demand for its texturant and fibre ingredients, particularly in Asia Pacific and Latin America. Management expects its speciality food ingredients division to grow across all regions for the full year, while its bulk ingredients division should deliver a stronger second-half performance, generating another year of profitable growth.

With any FTSE 100 giant, I like to see the size of its footprint in Asia, and this looks promising. In July, it bought a 51% stake in Jiangsu Howbetter Food, a leading food systems business in China, with an option to buy the remaining 49% stake at a later stage. Government approval is expected in the autumn. These are early days, but it’s an encouraging move.

Food, glorious food

Here’s something else I find encouraging: following recent underperformance, Tate & Lyle is cheaper than it was. In February, it traded at 14.4 times earnings. Today, you can buy it at 12.9 times. It now yields 3.5%, roughly in line with the FTSE 100 average, and an improvement on 3.1% in February. Earnings per share (EPS) growth stalled this year, but is now a decent 6% to March 2015, which could take the yield to 3.8%. After that chilly spring, Tate & Lyle is likely to have enjoyed the hot summer, which may show up in its next set of results. Citigroup has it as a buy, with a target price of 900p. Today you can buy it for 754p. This could prove a tasty way to play China.

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> Harvey doesn't own shares in any company mentioned in this article