April 1, 2011

 

Corn price hike boosts Tate & Lyle's gains

 

 

British sweeteners and starches maker Tate & Lyle said it had benefited from a rise in corn prices in the first three months of 2011, which prompted analysts to upgrade earnings forecasts.

 

The company also said on Thursday (Mar 31) it had sold a mothballed US ethanol plant to Cargill.

 

The London-based group, which makes sweeteners like Splenda, starches and ethanol, said it gained from the rise in corn by-products used as animal feeds in the first three months of this year.

 

This prompted the upgrades, which helped push Tate's shares higher.

 

"The rising cost of corn led to higher by-product prices, and is the source of an upgrade to forecasts," said analyst Sara Welford at house brokers Citi. She upgraded her pre-tax profit forecast for the year to March 31 to GBP252.1 million (US$405 million) from GBP247.1 million (US$396.2 million) previously.

 

Tate's shares rose 4% to 582 pence by 0820 GMT in a largely flat London stock market. The stock has outperformed the FTSE 100 by 6% this year.

 

Tate said it saw an encouraging annual performance with trading in line with market expectations, before the corn boost.

 

The corn price rise had driven a further increase in by-product income in the first three months of 2011 to give the group an additional boost.

 

Other analysts said the consensus pre-tax profit forecast would move towards GBP255 million (US$408.86 million) from a previous GBP251 million (US$402.45 million) in a company-compiled consensus.

 

Tate said it had sold the Fort Dodge plant for US$57 million, producing a gain of around GBP16 million (US$25.65 million). This would reduce net debt by the end of its financial year to March 31. The company had previously said it would be similar to that reported for September 30.

 

Last year, Chief Executive Javed Ahmed decided not to open the plant as the stream of commodity products anticipated was no longer needed.

 

The corn mill was built in the ethanol boom, but margins and industrial starch volumes declined sharply in 2008, leaving a rusting hulk in the cornfields of Iowa which was too expensive to commission and open for production.

 

"The white elephant of an ethanol plant that is Fort Dodge had been sold for GBP36 million (US$57.72 million), a small fraction of the cost it took to build, but at least it draws to a close a particularly misguided venture," Panmure Gordon analyst Graham Jones said.

 

Ahmed, who had been focusing on value-added products since taking on the role of CEO in late 2009, sold Tate's European sugar operations last year breaking the group's 150-year link to sugar. This was part of his plan to focus the group on fast-growing speciality sweeteners and to move away from bulk commodity products.