Tate & Lyle may be an old treasure, but the new strategy is modern and makes it a must-have

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The financial strength of the company also offers room for growth through acquisitions. It has already made two major acquisitions this year and said in its half-year results that more are on the horizon. The balance sheet was able to handle substantially higher levels of debt: net debt fell 55 per cent to £281 million last year, so it now has a net debt to equity ratio of just 23 per cent.

An interest coverage ratio of more than 10 in the first half of the year underlines the bank’s ability to withstand the rapid rise in interest rates caused by rampant inflation.

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It also overcomes the challenges associated with rapidly rising prices at a time when many companies are struggling to maintain their margins. In the first half of the year, Tate & Lyle was not only able to pass on rising input costs to its customers, but also increased its operating margin by 1.1 percentage points.

According to Questor, this is clear evidence of its competitive advantage and bodes well for investors at a time when above-target inflation may prove to be more persistent than policymakers currently assume.

Margins should be further improved by the company’s productivity program, which is expected to reduce costs by approximately $15 million in the current year. And with a broad geographic presence, including exposure to high-growth markets such as China, it is well placed to benefit from a likely improvement in the growth rate of the global economy in the coming years. It generated double-digit organic sales growth in all regions in the first half of the year.

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Of course, the near-term outlook for stock prices could be weighed down by weak investor sentiment and uncertain global economic outlook. However, according to Questor, the share’s 9% drop since the start of the year fully explains this, as does the period of great internal turmoil that has taken place in recent months.

Certainly, Tate & Lyle’s valuation remains relatively high at a time when many FTSE 250 stocks are trading at rock bottom prices. But with a solid strategy, solid financial position and sustainable competitive advantage, its expected price-to-earnings ratio of around 15 suggests it offers good value for money.

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Questor says buy
Ticker: TATE
Share price at close: 725.2p

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