LONDON -- It's time to go shopping for shares again, but where to start? There are loads of great stocks to choose from, and I've got my wallet out. So here's the question I'm asking right now. Should I buy Tate & Lyle (LSE:TATE)?
I've always had a sweet tooth, so why go right to the source of my addiction, and buy Tate & Lyle? It works in the sweetest business of all, sugar, sweeteners, starches, and sugar refining. Sugar consumption has tripled in the last 50 years and we now eat on average 20 teaspoons a day, so I know I'm not alone in my addiction. In fact, we're probably more addicted to the white stuff than alcohol, cigarettes, and sundry illicit substances. Thankfully, sugar is a legal high, freely available on every high street, and even children can buy it. So should I sink my teeth into Tate & Lyle?
A many Splenda thing
Tate & Lyle's share price performance over the past six months couldn't have been sweeter. The stock rose 22% to 7.94 pounds, despite reporting a 26% drop in operating profits for the six months to the end of September 2012. Management blamed that on softer market conditions in Europe and a "step change" in fixed costs, following the restart of its Splenda Sucralose facility in McIntosh, Alabama. Costs may have risen, but revenues remained strong, up 7% to 1.63 billion pounds.
Sweet and sour
The sweeteners and food products group's latest interim management statement, released on Feb. 1, didn't go down as nicely. It warned of a drop in third-quarter profits, which may have been in line with expectations, but still knocked 4% off the share price. Tate & Lyle has been hit by volatile corn prices and last year's hot summer, in which corn fungus aflatoxin flourished. It did report a solid start to the final quarter, but that didn't stop a number of analysts reviewing their hold recommendations. Management said it expected to make "modest progress" this financial year, but the market viewed that as a downgrade on previous claims of unqualified "progress." All that is sugar isn't necessarily sweet.
The market still has a taste for Tate & Lyle's products, though the stock is trading at a price-to-earnings ratio of 14.4 times earnings. That doesn't look great value to me, given modest earnings-per-share growth, forecast to be -2% in the 12 months to March 31, 2013, followed by 8% a year for the two subsequent years. The stock currently yields 3.1%, which again looks modest, with the FTSE 100 as a whole yielding 3.5%. I'm not exactly licking my lips at these numbers. Anyway, it's about time I kicked the sugar habit.
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