Anticipating Tate & Lyle’s coming trading update

<p>This Thursday (3rd April), Tate & Lyle is set to report on trading for its year ended March and it’s likely to garner much focus, […]</p>

This Thursday (3rd April), Tate & Lyle is set to report on trading for its year ended March and it’s likely to garner much focus, given the company’s dismal most recent update.

In February, the company stated that its third quarter results were lower-than-expected and warned that full-year results were likely to be broadly flat.

That was, according to the company, as a result of increased competition from China, which has driven down prices of sucralose (the core ingredient for its sweetener offering, Splenda).

Additionally, weakness in developed markets (which is core) offset relatively good performance in emerging markets.

Expectations are already particularly low

So, focus on Thursday is likely to be on the current situation with the sweetener maker’s sucralose palaver.

Tate & Lyle has already stated that it expects sucralose prices to continue to decline (it reckons that by 2015, prices will be 15% lower than current levels). Indeed, expectations as to whether that situation would improve soon have been carefully managed.

Meanwhile, further disappointing news from the company is possible. After all, Tate & Lyle has no control over the changing competitive landscape on that part of its business – as well as any potential further adverse impacts.

And the company’s shares have certainly paid the price. Tate & Lyle’s shares felt the heat of its update in February – closing around 6% down on the day.

Over the last year alone, the company has seen around 24% wiped off its stock. That decline caused the recent relegation of Tate & Lyle from the FTSE 100 to the FTSE 250.

But the company does have good long term prospects

Aside from the fact that Tate & Lyle’s other products seem to be faring well (with the company expecting those to grow), it’s working on a new product line-up which ought to help combat deterioration brought on by low sucralose prices.

And let’s not forget that Tate & Lyle has the potential to broaden further via acquisitions – like its swoop last month on China-based, Winway Biotechnology, for an undisclosed sum.

Its debt currently seems manageable. As of September 2013, its net debt to earnings before interest, tax, depreciation and amortisation stood at 0.8x, which is low by historical standards.

All that said, near-term challenges are likely set continue to drag on the company for now.

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