Tate & Lyle slumped on Monday after Jefferies downgraded the shares to ‘hold’ from ‘buy’ and cut the price target to 780p from 880p as it highlighted mounting cost pressures in Europe.
Jefferies noted that Europe is now a more material market for Tate, meaning it’s exposed to “soaring” inputs.
The bank said it reckons Tate will need more than 20% increases for CY23 contracts in Europe, the materiality of which has increased, post-spinning US primary into the Primient joint venture.
“Relative exposure to the tricky European market has increased post-separation,” it said. “We think Europe is circa one third of FBS (Food & Beverage Solutions) sales by origin & perhaps 45% by volume: a result of the semi-exit from circa £1.8bn of US Primary sales while retaining c. £100m of Primary in Europe, alongside c. £300m of speciality.
“Compounding the problem is that corn & gas are respectively 1.25x & 2.5x more expensive in Europe, even in more normal times. But now European corn & gas prices are ahead 60% & 85% on estimated CY22.”
At 0915 BST, the shares were down 3.8% at 732.20p.
