Analysts at Berenberg raised their target price on food and beverage ingredients supplier Tate & Lyle from 855.0p to 950.0p on Wednesday, stating the firm was now deserving of a valuation in line with its peers.
Berenberg opted to up its price target on the stock after Tate & Lyle announced its intention to sell a controlling 50% stake in its primary products business to KPS Capital Partners for £1.2bn.
As a result of the sale, Tate & Lyle will receive proceeds of roughly £900.0m and has plans for a subsequent £500.0m special dividend.
“In our view, this is the transaction investors have been waiting a decade for; we believe that it is a good deal for Tate & Lyle – with a supportive new partner – and the expectation of the deal was the reason we upgraded to ‘buy’ last month,” said Berenberg.
The German bank also stated Tate & Lyle’s new mid-term targets of 4-6% organic growth and 50-100 basis point margin expansion per year for the next five years were “attractive”.
“While on historical pro-forma financials for FY 2021 (March year-end), the stock now trades on 24x P/E, on our new forecasts, the “new” Tate & Lyle trades on 16.5x FY 2023 P/E – nearly a 50% discount to speciality peers,” said the analysts.
