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Broker snap: Investec downgrades Tate & Lyle ahead of Q3 results

Investec has cut its rating for sweeteners and food products group Tate & Lyle from ‘buy’ to ‘hold’ after reducing its forecasts ahead of the group’s third-quarter results, saying it’s time to ‘pause for a breather’ after a decent run.

The broker said it’s been ‘quite a ride’ at Tate, as the speed of the stock’s reversal of share price fortune since mid-September has ‘surprised’. Shares have jumped 29% since then, compared with an 18% rise for the wider FTSE 100.

As such, the stock now trades at 14 times prospective earnings (on consensus estimates), well above its long-run average of 11.5. Meanwhile, it is yielding 3.3%, compared with the long-run average of 5.0%.

‘We had been arguing for a re-rating and an 850p 12 month price target in November. But Tate’s virtual arrival within just three months sends a cautionary signal to us,’ said analyst Martin Deboo.

He highlighted the sweetener pricing round in the US which achieved lower-than-expected price increases, as well as pricing in Mexico and margins in Europe as causes for concern.

As such, Investec has cut next year’s (year ending March 31st 2014) earnings estimates by 3%, though this is almost offset by better foreign exchange movements.

Shares were down 1.50% at 821.5p by 09:55 on Monday.


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