Should You Sell Sugar Giants Tate & Lyle PLC and Associated British Food plc And Buy J Sainsbury plc Instead?

Tate & Lyle (LSE: TATE) has become known for its profit warnings over the last couple of years: the firm’s shares have fallen from 2013 highs of nearly 900p to around 650p, due to a steady decline in profits.

Today, Tate & Lyle announced that it will offload much of its European bulk ingredients business, which makes bulk sweeteners such as corn fructose syrup, and refocus its SPLENDA Sucralose sweetener business to cut costs.

The changes are aimed at focusing the business on its more profitable specialty ingredients business, but will reduce profits slightly for the current year.

Tate shares were largely unchanged when markets opened, perhaps because the firm confirmed that its dividend would be left unchanged, at 28p, for the current year, giving an attractive forward yield of 4.3%.

However, Tate’s 2015 forecast P/E of 17 seems generous to me, and I wouldn’t rush to buy at today’s prices.

Sugar too cheap for ABF

Tate & Lyle’s UK peer Associated British Food (LSE: ABF) was also in the news today — ABF shares fell by nearly 3% after its interim results were published.

ABF is struggling with the impact of low EU sugar prices: revenue at the firm’s sugar business fell by 10% during the first half of the current year, causing operating profits to fall from £64m last year, to a £3m loss, over the last six months.

Although ABF’s other two main businesses, groceries and Primark, both reported an increase in operating profits during the first half, the drag from sugar meant that ABF’s adjusted pre-tax profits fell by 4%, to £450m.

Spin-off Primark?

ABF is increasingly becoming two companies: the fast-growing Primark retail business, and the slow-growing food and ingredient business.

Selling or floating Primark could be logical, but in the meantime investors need to weigh up the risk of holding onto ABF shares, which are currently valued at 27 times 2015 forecast earnings, and offer a yield of just 1.3%.

I believe there are better buys elsewhere. One food firm I would prefer to invest in is supermarket stalwart J Sainsbury (LSE: SBRY) (NASDAQOTH: JSAIY.US).

Sainsbury continues to look like the pick of the supermarkets, to me. Its more upmarket image appears to have enabled the firm to deliver a more stable performance than Tesco, and Sainsbury shares look reasonably priced, to me, on a 2015 forecast P/E of 12.8, and a prospective yield of 3.7%.

Although near-term upside seems limited, I believe Sainsbury is an attractive medium-term buy, at a reasonable price.

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Roland Head owns shares in Tesco. The Motley Fool UK owns shares in Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.