Tate & Lyle slides as analyst turns negative

Tate & Lyle suffered its sharpest fall in more than two months after a veteran analyst turned negative.

Charlie Mills, who has covered Tate for Credit Suisse since 1999, cut his recommendation to "underperform" with a 600p target.

Tate's move away from bulks and into speciality and added-value ingredients means group earnings have been whittled back to a lower level than they were a decade ago.

Yet, at 17.5 times 2016 profit, the stock remains at a premium to peers, he argued.

Tate's sale of its Eastern Starch joint venture for €240m "may well improve the quality of the group's earnings but at barely five times earnings before interest and taxes, is significantly dilutive to group earnings and a reminder of how low the valuations in the Bulk business can be", Mr Mills said.

He also argued that Tate's decision to reduce production of the Sucralose sweetener to a single plant "surely says the future profit stream from Sucralose is now modest at best, undermining another part of the bull story".

Tate closed 5.3 per cent lower at 608.5p in a mixed market. The FTSE 100 was down 0.5 per cent, losing 34.69 points, to 7,028.24.

Tesco reversed an initial gain to end 5.2 per cent lower at 222.7p after in-line results.

Traders pinned the pullback on a comment that "all funding options are on the table" with regards to fixing the balance sheet as well as cautious guidance on UK margins, which meant Sainsbury lost 3.7 per cent to 263p and Morrison fell 4.1 per cent to 190.4p.

Ashtead was down 2.1 per cent to £11.39 after United Rentals, its main rival in the US, said a harsh winter and declining oil and gas activity had slowed rental revenue growth.

Analysts noted that guidance was otherwise positive from United Rentals, which has much more exposure than Ashtead to oil markets, having bought National Pump in 2014.

Hargreaves Lansdown slipped 2.9 per cent to £11.98 after Jefferies cut the stock from its "buy" list.

Johnson Matthey fell 0.8 per cent to £34.66 on a revival of rumours that it might bid for Clariant - the Swiss chemical maker is also said to have been targeted by Evonik and Dow Chemical.

Ahead of its capital markets day on May 6, GlaxoSmithKline lost 1.6 per cent to £15.49.

JPMorgan Cazenove advised selling, saying GSK's pharmaceuticals division looks overvalued based on flat sales and declining earnings through to 2020.

Playtech added 3.4 per cent to 840.5p after Goodbody turned positive in response to the gambling software maker's $224m purchase of TradeFX, a financial trading platform owned by Playtech founder Teddy Sagi.

While the related-party transaction raises concerns, positives such as an attractive valuation and cash generation outweigh the negatives, Goodbody argued.

Electrocomponents was off 1 per cent to 242p on word of a share placing equivalent to nearly 1 per cent of the electronic parts distributor.

Britvic faded 2.1 per cent to 734.5p with Societe Generale downgrading to "hold" ahead of interim results next month from the drinks maker.

The weak euro will take £32m off Britvic's full-year earnings, it forecast.

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