Tate & Lyle issued its third profit warning in a year earlier this month, but analysts believe the worst may be over, and the company could even be a £4.4bn bid target for US group Bunge.
Canaccord Genuity has moved its recommendation on Tate from sell to buy and raised its target price from 530p to 650p. Analyst Alicia Forry said:
The likelihood of a further profit warning in the near term appears low, and we think this risk is now captured in the valuation. Sucralose prices and High Fructose Corn Syrup prices have been set for the calendar year. The comps should be easy over the next 4 quarters, given last year’s bad weather and Singapore plant shutdown. The US dollar should provide a tailwind and corn prices are currently forecast to rise during 2015, which would boost co-product income.
There is also the prospect of interest from Bunge, which has been mentioned as a possible predator in the past. Canaccord reckons Bunge could pay 781p a share - compared to Tate’s current market price of 570p, up 12p. Including debt and its pension deficit, that would value Tate at £4.4bn. Canaccord said:
A potential bid from Bunge is now substantially greater in our view, given Tate’s lowered valuation, a strong US dollar, low interest rates, a good strategic fit and shareholder dissatisfaction with Tate. Tate would provide greater exposure to value added ingredients and expand Bunge’s presence in corn milling, an area of long term interest to the company (c.f. the failed bid for Ingredion in 2008).
We think Bunge could afford to offer a 40% premium to the current Tate share price....which would be 19% accretive to Bunge and reduce group return on invested capital by only 120 basis points in the current year, assuming (conservatively) that none of Tate’s profits [from existing joint ventures with other partners] are retained.
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