I’m watching this FTSE 250 stock for 2020

I think this FTSE 250 (INDEXFTSE: MCX) stock looks good for 2020.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

With only four full months left in 2019 I’m thinking about which stocks are likely to be worth watching in the coming year. I think Tate & Lyle (LSE: TATE) is a strong contender for growth in 2020. Year-to-date its share price has seen a high of £8 but is now around £7, at a 37% discount to its estimated future cash flow value. Rumours of a takeover bid apparently caused the spike, but these were quickly quashed. 

Sugar shake-up

When I see the Tate & Lyle brand I immediately think of sugar. However, its European sugar business (Tate & Lyle Sugars) was sold to American Sugar Refining in 2010 and now the main purpose of Tate & Lyle is specialist ingredients for food producers with a focus on healthy alternatives. It is a global business with a team of scientists working with customers on perfecting taste and textures and adding nutrients to food. Ironically, many of its ingredients and solutions for the food, beverage and industrial markets are designed to reduce sugar, as well as calories and fat, whilst also adding fibre. All vitals of a healthy modern diet.

The company has three main divisions and a growing portfolio of ingredients. Its Primary Products division produces high-fructose corn syrup and starches; its Sucralose division manufacturers zero-calorie artificial sweeteners; and Food & Beverage Solutions concentrates on specialist ingredients. In its financial report to the end of March 2019, it reported strong financial progress, particularly for Sucralose.

This FTSE 250 giant has a market cap of £3bn, earnings-per-share of 38.6p and a dividend yield of 4%. The dividend has been stable for 21 years. It has a debt ratio of 47% and it has been consciously driving down net debt through delivering strong cash flow.

Strategically placed

Rising global obesity rates and diabetes are putting pressure on governments to constrain sugary food consumption. In addition, consumer demand for natural foods is forcing food makers to rewrite their recipes, reducing salt, sugar and fat content. Tate & Lyle is already assisting companies to do this, but is well placed for further expansion. According to a report by Zion Market Research in May, the global natural sweeteners market will reach $37.6bn by 2025 up 39% from $27bn in 2018.

TATE’s shares have risen 35% since CEO Nick Hampton took over in April 2018 and I foresee continued growth throughout 2020 because with healthy eating continuing to be a key concern of Western society, the company is fixated on helping make food healthier through sugar content reduction. As mentioned, I think it’s somewhat ironic for a brand that was once key in sugar consumption, but it’s a positive direction for growth and a great example of brand diversification.

The firm has a profit margin of 7% and an operating margin of 10%, while its price-to-earnings ratio is 18.

Its EV/EBITDA is just 8. This is its enterprise-value-to-EBITDA ratio and is a way to measure a company’s performance. It’s calculated by dividing the enterprise value of a company by its earnings before interest, taxes, depreciation, and amortisation. A low figure is better, and at 8, Tate & Lyle’s is lower than the industry average of 11.69.

Overall, I think there’s a lot to like about this company. Its leadership team also seems to be proactive, while the company has financial stability, cash for acquisitions, is well placed to meet rising consumer demand, and delivers a reasonable dividend. I deem Tate & Lyle a Buy.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »