Berenberg upgrades Tate & Lyle to 'buy'

Berenberg upgraded its stance on shares of Tate & Lyle to ‘buy’ from ‘hold’ on Wednesday, pointing to the increasing likelihood that an eventual separation of the speciality Food & Beverage Solutions (FBS) unit and bulk Primary Products (PP) unit will occur.

At the full-year results last week, the company confirmed that discussions with potential partners about the split were ongoing.

"We believe this transaction would lead to a material re-rating of Tate & Lyle, from a current 14x price-to-earnings, more than offsetting earnings dilution, with 25% upside to our fair value for this scenario of 955p," the bank said.

Even if the current discussions end, management is now determined to undertake a similar transaction in the future, which will continue to support the valuation, Berenberg added.

"A growing track record of solid execution and an improving outlook also mean our discounted cash flow valuation for the existing business structure of 855p implies 12% upside (still implying just a 15x 12-month forward P/E)."

Berenberg lifted the price target to 855p from 730p.