Kepler downgrades Tate & Lyle to 'reduce', looks to lock in profits

The bank cited doubts about Tate's ability to beat peak-year 2017/18 in terms of operating performance as the main reason for its change of stance.

"Although we expect the current year to be quite similar EBIT-wise, we see big downside risks to the Sucralose and commodities businesses (together circa 30% EBIT) from 2019/20E onwards. We think the market misunderstands the dynamics there, and we are 10% below consensus EBIT numbers for 2019/20E and 15% for 2020/21E."

Kepler said that at 15x estimate 2019/20 price-to-earnings, the stock is no longer cheap.

"A price-to-earnings comparison with main peer Ingredion shows a 20-25%+ premium for Tate & Lyle. Based on our estimates, investors are already willing to pay for the potential of M&A/buybacks. Given the focus on operational performance in Tate’s remuneration policies, we do not believe a big buyback is likely.

"On M&A, we have our reservations regarding potential for value creation, given the transaction multiples seen in the sector."

At 1030 BST, the shares were down 2.4% to 662.80p.