Numis upgrades Tate&Lyle, recommends keeping wary eye on NAFTA reform

Analysts at Numis hailed Tate&Lyle's full-year results for the latest fiscal year, bumping up their target price from 849p to 882p in the process, even as they cautioned about the potential negative impact the renegotiation of NAFTA might have.

They also upgraded their recommendation on the shares from 'hold' to 'add'.

In the company's latest financial year, profits before tax jumped 40.4% to £271m boosted by a foreign-exchange tailwind.

Numis pegged the improvement in the firm's underlying results at 17.6%, adding that "there are still issues" but said it saw some upside scope and highlighted the dividend yield on offer.

Net debt relative to operating profits stood at only 0.9, which might stand the company in good stead if it needed to pursue M&A in order to meet its goal of securing 70% of its EBIT by financial year 2019/2020 from speciality food ingredients, in comparison to 54% last year, Numis said.

The analysts also saw scope to continue reducing net debt given how capital expenditures would be muted in the near-term.

All in all, Numis revised its estimates for Tate&Lyle in the current fiscal year and for the next, although a rising tax rate would restrain earnings per share in this fiscal year.

Numis also said a wary eye needed to be kept on the Trump administration's aim of reforming NAFTA.

The initiative could put Tate's exports of high fructose corn syrup to Mexico at risk, as well as the performance of Almex, its Mexican joint-venture.