Is Now the Time to Buy Tate & Lyle?

LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market. So right now I'm trawling through the FTSE 100 and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.

Today I am looking at Tate & Lyle (LSE: TATE  ) to determine whether you should consider buying the shares at 756 pence.

I am assessing each company on several ratios:

  • Price to earnings: Does the share look like a good value when compared against its competitors?
  • Price to earnings growth: Does the share look like a good value when factoring in predicted growth?
  • Yield: Does the share provide a solid income for investors?
  • Dividend Cover: Is the dividend sustainable?

So let's look at the numbers:

Price

756 pence

3-Year EPS Growth

46%

Projected P/E

13

PEG

0

Yield

3.3%

3-Year Dividend Growth

9%

Dividend Cover

2.3

The consensus analyst estimate for next year's EPS is 57 pence (0% growth). Dividend per share is 26 pence (4% growth).

Trading on a projected P/E of 13, Tate & Lyle appears to be more expensive than its peers in the food producers sector, which are currently trading on an average P/E of around 10.8. Unfortunately, Tate & Lyle's P/E and flat near-term earnings-growth rate give a PEG ratio of zero, which cannot help with my analysis.

Offering a 3.3% yield, the dividend is the same as the food producers sector average. However, Tate & Lyle has a three-year compounded dividend growth rate of 9%, implying the yield could stay in line with that of the firm's peers.

The dividend is more than two times covered, too, giving Tate & Lyle room for further payout growth.

No growth, but does Tate & Lyle provide security?
Tate & Lyle's food operations should give the firm some immunity from the current economic headwinds. After the sale of the group's sugar business in 2010, the company is now focused on specialty starches (30% of revenue) and bulk food ingredients (70% of revenue). However, the company is still significantly exposed to volatile commodity prices.

Unlike most other companies of late, Tate & Lyle reported what I felt was a strong performance in Europe within its first-half results. I can see the majority of this strong performance was down to the bulk ingredients division, which reported a 6% rise in operating profit.

On the negative side, however, there are significant threats. Competition in the specialty-starches market is aggressive and is eroding Tate & Lyle's profits. In addition, Tate & Lyle produces a significant amount of its products from corn, and I reckon the U.S. drought earlier this year -- and subsequent rise in corn prices -- is likely to have a notable effect on group earnings.

Anyway, taking into account the slightly expensive share price, the average yield, and the lack of near-term growth, Tate & Lyle does not look attractive to me. However, the firm's products do have a certain recession-proof nature.

Overall, I believe now does not look to be a good time to buy Tate & Lyle at 756 pence.

More FTSE opportunities
Although I feel now may not be the time to buy Tate & Lyle, I am more positive on the FTSE shares highlighted in "8 Dividend Plays Held By Britain's Super Investor." This exclusive report reveals the favorite income stocks owned by Neil Woodford -- the City legend whose portfolios have thrashed the FTSE All-Share by 200% during the 15 years to October 2012.

The report, which explains the full investing logic behind Woodford's dividend strategy and his preferred blue chips, is free to all private investors. Just click here for your copy. But do hurry, as the report is available for a limited time only.

In the meantime, please stay tuned for my next verdict on an FTSE 100 share.


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