Broker snap: Tate & Lyle upgraded by JPMorgan on earnings potential

7th Feb 2014 09:09

JPMorgan Cazenove has lifted its rating for Tate & Lyle from 'underweight' to 'overweight', showing optimism about volume and earnings growth at the sugar and sweeteners firm.The bank said that earnings growth at the group level has been held back for the past two years due to investment made in the speciality food ingredients (SFI) platform. However, it believes this spend is "now bearing fruit".JPMorgan said that this should allow Tate to turn strong volume growth of 5% per annum into earnings before interest and tax (EBIT) growth of 8% per annum, "driving acceleration in group earnings growth".It added that the margin opportunity in the underlying SFI business "remains unrecognised".Meanwhile, recent market concerns regarding the pricing of sucralose (which accounts for 19% of group EBIT) and the bulk division (44% of EBIT) are now "priced in", the bank said.The bank said its new target price of 900p, which was raised from 735p previously, implies 19% upside from current levels."New technologies such as natural sweeteners provide further upside to current growth forecasts and suggest a bull case price target of 1,580p," it said.The stock was 2.1% higher at 777p by 09:39 on Friday.BC