Tate & Lyle tanks as Exane highlights Trump threat to US-Mexico relations

Shares in Tate & Lyle tanked on Wednesday as Exane BNP Paribas downgraded its stance on the stock to ‘underperform’ from ‘neutral’ and cut the price target to 570p from 760p.

The bank made the downgrade before Donald Trump actually won the US election, noting that his victory poses a threat to US-Mexican trade relations.

The company’s US-based business makes corn fructose sweeteners for soft drinks.

With Trump in power, there is a possibility that the US-Mexico trade agreement will be at risk, Exane said, adding that losing Mexican access would be “disastrous” for the high-fructose corn syrup (HFSC) industry.

The US HFCS industry finally gained unfettered access to Mexico in 2006 thanks to a bilateral agreement mandated by the North American Free Trade Agreement. This resulted in a multi-year bull run, which has continued until now, in the US corn sweetener industry.

“Should NAFTA come under pressure, HFCS looks very likely to be one of the first industries to be impacted (the Mexican sugar lobby is very strong),” Exane said.

“Capacity utilisation effectively determines US HFCS industry profitability. As outlined in our report earlier this week, we estimate that losing Mexican access would see industry capacity utilisation plummet from 90% to 78%, a level not seen since 1997. Industry profits would very likely collapse (as a guestimate, -50% feels a reasonable).”

The bank pointed out that North American corn sweeteners account for around 40% of Tate’s earnings before interest and taxes, so Trump’s victory could drive a material re-rating in the shares.

Exane said it was leaving its estimates for the company unchanged given the lack of visibility on the timing and scope of any potential changes in the US-Mexico trade relations. However, it is now valuing Tate at its historical trough price-to-earnings multiple relative to peers in recognition of the risk.

At 1430 GMT, Tate shares were down 11.7% to 660p.