Berenberg keeps Tate & Lyle at 'buy', says recent falls were overdone

The negative reaction to Tate & Lyle's proposed tie-up with US food ingredients group CP Kelco was "too extreme", according to Berenberg, which kept a 'buy' rating on the UK food and beverages group following the announcement.

Shares fell more than 9% on Thursday after Tate & Lyle said it would be spending $1.8bn on CP Kelco's US, Chinese and Danish subsidiaries to get its hands on the company's pectin and speciality gums operations.

Tate & Lyle said it expected significant cost and revenue synergies from the transaction, but would be selling a 16% stake in the company to CP Kelco's owner JM Huber Corporation.

Berenberg said the deal would be dilutive to earnings per share in 2025 and 2026 – which probably explains the negative market reaction – before becoming accretive to profits thereafter.

"Shares closed down by 9.1% but we think this reaction was too extreme, with CPK offering Tate the opportunity to expand its highly profitable Solutions business and expand geographically, increasing its exposure to high-growth markets in Asia, the Middle East and Latin America," the broker said.

"The transaction aligns with Tate’s ambition to capture the c6% growth offered by the global speciality ingredients market."

Berenberg has an 860p target price for the stock, was had rebounded 1.1% to 622p by 1152 BST.