Wednesday, January 28, 2004
On Monday I declared my sweetspot for London listed Tate and Lyle, a billion pound carbohydrate manufacturer. The business is sufficiently simple that it may be readily appraised, a vital ingredient in the investment selection process.
It was my intention to publish this analysis on Monday. That didn't happen for one reason or another and this morning's news from the company has forced a rethink. Prior to the market opening this morning Tate and Lyle announced the results from its Amylum business will this year be hit by rising raw materials costs in Europe. This was news to the market and at the time of writing the shares are down 28 pence, a 9.2% fall.
"Profit before tax and exceptional items for the Group for the financial year to
31 March 2004 will depend upon the final outcome of the pricing negotiations in
both the US and Europe and the translation impact of exchange rates.
Nevertheless, we anticipate results will be close to market expectations with a
weaker Amylum result in the final quarter being offset by a satisfactory
performance in the rest of the business."
Trading statement, 28/01
Tate's biggest attractions as an investment are the company's consistent profitability and the large dividend. The previous years' full earnings and dividend were 27.8p and 18.3p respectively. Should these numbers be held for this full year's results (expected early June) Tate would be trading at 9.9 times earnings and a 6.64% dividend yield at today's price to buy of 275.5p. Today's news only increases the difficulty of putting a value on Tate, comments like this do not bode well:
"Looking forward, based on our current experience of raw material costs and
contract negotiations to date, we expect Amylum's results for the financial year
to 31 March 2005 to be significantly below those of 2004. A review of Amylum's
operations is in hand in order further to reduce the cost base. Although we
anticipate further progress in 2005 at our North American businesses, this is
likely to be offset on currency translation."
Phrases such as 'reduce the cost base' are usually directorese for 'there will be redundancies' and 'be offset on currency translation' means 'earnings derived in North America will not look that impressive in our bottom line on conversion to pounds sterling - due to recent dollar depreciation'. It reads as though Amylum is in trouble. The comment about full year earnings being close to market expectations is encouraging. Most recent market expectations were for earnings per share of 33p. At today's price that has the business on a price-to-earnings ratio of 8.34. Coupled with the sizeable dividend Tate looks very attractive indeed. Unfortunately, I need more time to digest today's serving from Tate. I shall return with a new price target in 48 hours.
And how much would I be investing should I decide Tate and Lyle is worth it? £4000. That would constitute my largest ever initial stake since I started buying shares.
The Artful Dodger
It was my intention to publish this analysis on Monday. That didn't happen for one reason or another and this morning's news from the company has forced a rethink. Prior to the market opening this morning Tate and Lyle announced the results from its Amylum business will this year be hit by rising raw materials costs in Europe. This was news to the market and at the time of writing the shares are down 28 pence, a 9.2% fall.
"Profit before tax and exceptional items for the Group for the financial year to
31 March 2004 will depend upon the final outcome of the pricing negotiations in
both the US and Europe and the translation impact of exchange rates.
Nevertheless, we anticipate results will be close to market expectations with a
weaker Amylum result in the final quarter being offset by a satisfactory
performance in the rest of the business."
Trading statement, 28/01
Tate's biggest attractions as an investment are the company's consistent profitability and the large dividend. The previous years' full earnings and dividend were 27.8p and 18.3p respectively. Should these numbers be held for this full year's results (expected early June) Tate would be trading at 9.9 times earnings and a 6.64% dividend yield at today's price to buy of 275.5p. Today's news only increases the difficulty of putting a value on Tate, comments like this do not bode well:
"Looking forward, based on our current experience of raw material costs and
contract negotiations to date, we expect Amylum's results for the financial year
to 31 March 2005 to be significantly below those of 2004. A review of Amylum's
operations is in hand in order further to reduce the cost base. Although we
anticipate further progress in 2005 at our North American businesses, this is
likely to be offset on currency translation."
Phrases such as 'reduce the cost base' are usually directorese for 'there will be redundancies' and 'be offset on currency translation' means 'earnings derived in North America will not look that impressive in our bottom line on conversion to pounds sterling - due to recent dollar depreciation'. It reads as though Amylum is in trouble. The comment about full year earnings being close to market expectations is encouraging. Most recent market expectations were for earnings per share of 33p. At today's price that has the business on a price-to-earnings ratio of 8.34. Coupled with the sizeable dividend Tate looks very attractive indeed. Unfortunately, I need more time to digest today's serving from Tate. I shall return with a new price target in 48 hours.
And how much would I be investing should I decide Tate and Lyle is worth it? £4000. That would constitute my largest ever initial stake since I started buying shares.
The Artful Dodger
Comments:
Post a Comment
