Cheryl Marabese

Sweet taste of profit?

23 February 2009
No doubt we have all cut down on sugar in our tea's and coffee's and tried to reduce sugary snacks, for health reasons but the fact remains that sugar is a preservative (eg. in jams) and is used in a huge range of foods like bread and ham on a worldwide scale. Question is, are sugar companies worth investing in during 2009?

Only 2 companies in the UK are involved with sugar production - Associated British Foods (about 30% of their profits) and Tate & Lyle.
Associated British Foods is usually considered a staple defensive stock, with its key sugar and ingredients business holding up well, and good performances from its Twinings Ovaltine and Allied Bakeries brands, although the Grocery profits in the first half will be lower than last year. A substantially lower profit at ACH and declines in Silver Spoon and George Weston Foods in Australia will outweigh progress elsewhere. Retail trading in Primark branded stores (now 187) was strong. 7 new stores are planned, including 2 stores in Spain, 1 store in Germany and 1 in Portugal. 
Operating profit in 2009 and net debt balances are likely to be in line with previously published forecasts.
AB Food PLC Shares are 649p.

I'd love to see Tate & Lyle succeed and profit, the company evolved from the 1865 sugar refining partnership, of Henry Tate and Abraham Lyle's.
Tate & Lyle PLC shares are now just 283p, about the lowest they have been in 5 years (over last 5 years it did reach 821p in Dec 2006). Most analyst have however downgraded Tate & Lyle to sell, including Goldman on 29 January 2009; UBS has also listed Tate & Lyle to sell; Merrill Lynch repeated its underperform view on Tate & Lyle.
On 28 January 2009 - Tate & Lyle PLC issued an Interim Management Statement:
Its USA business results were lower, though European businesses were in line with expectations. Orders remain at lower levels than in the first half of the financial year and now expect the outturn for the Group’s continuing operations in the year to 31 March 2009 to approximate the prior year.
Focused on the food sector gives them some resilience to the global economy. There was good demand for food ingredients and HFCS (isoglucose) in 2008 but there was reduced demand for industrial starches for use in paper and board. Energy costs were higher in 2008.
Within the Sugars division, our EU sugar refineries benefited from the lower institutional raw sugar prices from 1 October 2008, which reduced as part of the reform of the EU sugar regime. Molasses has continued its strong performance.
Sucralose volumes increased by 6% over the comparative period in the prior year, they own the Splenda®, registered trademark. And are appealing against the ITC's preliminary, non-binding decision regards Chinese manufacturers and distributors concerning alleged infringement of patents.
Finally net debt at Tate and Lyle, on 31 December 2008 was £1,530 million.

For some years now both these companies have also received EU sugar subsidy's - though this was reduced in 2005. African, Caribbean and Pacific countries are more geared from a climate point-of-view regards growing sugar, so there can be no guarantee that these subsidies will continue. Also with fluctuating sugar and corn prices, it's always difficult to see what the future holds.

Remember as 2008 has shown, shares and other financial assets can go up and down at frightening speed. Don't buy any, unless you know what you are doing and can afford to lose the money.