Broker snap: Tate & Lyle hit by Credit Suisse downgrade

20th Sep 2013 09:12

Shares in food and sweeteners manufacturer Tate & Lyle were falling heavily on Friday morning after the stock's rating was cut by Credit Suisse from 'outperform' to 'neutral'. The bank said: "There is a lot to like about the long-term story at Tate & Lyle - better managed, better and improving mix of business and potential for a re-rating. However short term there are a number of concerns."Analysts reckon that a major upturn in sucralose price deflation "looks wide of the mark", while the selling price of sugar in Europe - which is linked to isoglucose and sweetener prices - has started the fall sharply.However, they said that their "greatest concern that tips the balance of our rating" is the Mexican government's proposal to tax soft drinks which would cut demand for high-fructose corn syrup (HFCS) by as much as 25%."To compound the issue the local soft drink bottlers have sought support from the (politically-savvy) sugar producers and promised in return to increase their use of sugar (at the expense of HFCS). Either way, with the US market also falling, it looks like demand for HFCS will fall in North America, and with it capacity utilisation. That will undermine price negotiations come December."The bank has cut its earnings per share estimates for Tate & Lyle by 7-8% and lowered its price target from 930p to 800p."The long-running forward price-to-earnings multiple is 12 versus 13.5 today. That looks right to us."The stock was down 3.32% at 758p by 09:26 on Friday.BC