Every month I invest in my Stocks and Shares ISA to help build long-term wealth. Recently, I’ve been looking through the FTSE 250 index for potential opportunities.
One iconic name that always stands out is Tate & Lyle (LSE: TATE). The company is steeped in history and was one of the original constituents of the FTSE 30 index established in 1935.
Its name comes from Victorian-era sugar refiners Henry Tate, who funded the building of London’s Tate Gallery, and Abraham Lyle. The latter gave his name to Lyle’s Golden Syrup, one of the world’s oldest brands.
Nowadays, the company focuses on sweeteners and thickeners after the sugar brands were sold in 2010. It says: “Open any fridge or kitchen cupboard, in any household, in practically any part of the world, and you’re likely to find products containing our ingredients and solutions.”
The dividend-paying stock is down 22% over five years. Should I add it to my ISA this summer?
Profits are growing
The firm’s annual report covering the 12 months to 31 March was pretty solid. Adjusted EBITDA rose 7% year on year to £328m, while adjusted diluted earnings per share increased 18% to 55.5p. Free cash flow improved by £49m to reach £170m.
That said, revenue fell 2% to £1.65bn due to easing inflation and a strategic focus on margin improvement over volume, including cost-cutting measures.
It’s worth pointing out that the operating margin has improved from 8.5% in 2019 to 12.6% last year. So that’s encouraging to see.
The company also announced that it has completed the sale of its remaining interest in Primient for $350m. This business deals with ingredients like high fructose corn syrup and corn starch.
Selling the remaining stake in Primient means Tate & Lyle is now focused on speciality food and beverage ingredients. These offer higher margins and potentially faster growth.
The company said net proceeds from the sale would fund a share buyback programme.
Dividend
The stock seems fairly valued at 12 times forward earnings. Another positive thing to note here is that net debt has been reduced significantly. At year-end, it was £153m, down from £626m in 2022.
Last year, the dividend was raised by 3.2% to 19.1p per share, giving a yield of 2.8%. It’s reassuringly covered more than two times by earnings.
However, dividend growth has been disappointing in recent years. And the 3% forward yield doesn’t look too appealing. For context, the yield was 4% two years ago and the share price has fallen 20% since then.
My verdict
Over the last six years, the company has been executing a strategic transformation to become a growth-focused speciality food and beverage solutions business. While margins are certainly heading in the right direction, I think lack of revenue growth might weigh on the stock.
Looking ahead to this year, the firm anticipates slightly lower revenue, with EBITDA growth between 4% and 7%. And analysts aren’t forecasting much top-line action next financial year.
Long term, the global speciality food ingredient market is expected to grow at around 6% on a compound annual basis.
All things considered, it’s hard for me to get excited about either the growth rate or the 3% yield. I’d rather invest in stocks offering much faster growth or 6%+ dividend yields.
