Tate & Lyle rallies after encouraging capital markets day

Liberum, which reiterated its ‘buy’ rating on the stock, said Tate hosted a “confident” CMD focused on the group’s Speciality Food Ingredients unit.

The broker said Tate laid out credible plans to deliver its ambition to transform the group into a materially SFI-focused business by 2020.

“Over the past 18 months, Tate has significantly upgraded SFI’s capabilities and skills while realigning the group's portfolio to benefit from global demand for healthier and convenient foods. We were impressed by the SFI team and believe they are well positioned to outperform end-market growth of 4-5% growth and expand margins.”

Liberum expects Tate's recovery to lead to improving free cash flow generation as margins rebound.

It forecasts a strong pick-up post FY16 with free cash flow that covers progressive dividend payments from FY17.

In addition, it said improving FCF generation puts Tate’s balance sheet on a better footing. The broker estimates a 40% drop in net debt by FY18, which in turn will give management the flexibility to accelerate investment in SFI or undertake bolt-on M&A.

“In our view management should not be afraid to take more aggressive steps to improve FCF generation or fund strategic investment or M&A including selling non-core assets such as sucralose or even holding what is a generous dividend flat in favour of investing more aggressively behind SFI capabilities.”

At 1034 GMT, Tate shares were up 3.4% to 603.50p.