Sugar-free Tate & Lyle can still sweeten returns

ACCORDING to Government statistics, more than 60 per cent of adults in this country are overweight or obese and rising numbers of children are carrying too many pounds as well.

The economic cost of this is estimated at almost £30 billion, the psychological impact can be intense and even the environment is suffering from consumers’ enthusiasm for junk food.

Small wonder then that last week’s National Food Strategy, a Government-commissioned review, pulled no punches, recommending the introduction of salt and sugar taxes and arguing that meat consumption should be cut by a third.

For many in the food industry, these proposals will strike alarm bells. For Tate & Lyle, however, the report will almost certainly prove welcome.

With a 150-year heritage in sugar and syrup, Tate & Lyle may not seem the obvious candidate to benefit from growing fears about expanding waistlines. But the group sold off those legacy businesses in 2010, leaving two main divisions, one focused on turning corn into sweeteners and starches, the other on creating healthy ingredients for the food and drinks industry.

Last week, chief executive Nick Hampton went one stage further, announcing the sale of 50 per cent of the corn processing subsidiary for £1.2billion so he can scale up the fast-growing ingredients business.

American private equity firm KPS is buying the corn division and will run it as a standalone business but Tate & Lyle will benefit as and when the company grows and there is the prospect of particularly attractive returns if KPS sells the new firm outright.

In the short term, Tate & Lyle shareholders will be handed a £500 million special dividend, equivalent to around £1 a share, and Hampton will dedicate himself to developing more and more ingredients that replace sugar, fat and salt with healthier alternatives. Splenda is probably the best-known of these, but the group works with some of the largest food and drink firms in the world so its products go into everything from iced tea to yogurt to tomato ketchup.

The business has already benefited from increasing concerns worldwide about obesity. Over the next few years, those worries are expected to deepen so Tate & Lyle’s prospects in its new guise seem bright.

Traded on: Main market Ticker: TATE Contact: tateandlyle.com or Equiniti on 0371 384 2063

MIDAS VERDICT: Midas recommended Tate & Lyle in 2015, when the shares were £6.08. Today, the shares are £7.29, having fallen more than 10 per cent since Hampton first hinted at his break-up plans two months ago. The decline seems unfair. Large investors have been complaining about the corn business for years. Now Hampton has offloaded it in a clever deal which allows Tate to retain an ongoing interest, while driving growth within the trendy ingredients division. Existing shareholders should retain their stock. New investors could even pick up some shares at current levels.