Credit Suisse has raised its recommendation for sweeteners and food products group Tate and Lyle from 'neutral' to 'outperform' and raised its target price from 700p to 750p despite leaving its forecasts unchanged.

The broker highlighted that the current financial year (ending March 2013) has £40m of 'headwinds' to battle against, a significant hurdle given the £318m of group pre-tax profit last year.

"True, half this is the absence of £20m of one-off by-product credits, but the other half can be reasonably viewed as investment for growth - including the new R&D facility, Shared Service Centre and the McIntosh Sucralose facility coming on stream," Credit Suisse said.

While the company guided to interim profits "in line with last year" (£194m), the broker said that this "suggests a lot is going right behind the scenes" given that £30m of the 'headwinds' have fallen in the first half.

Credit Suisse said: "Tate has spent a few years getting its house in order, disposing large tranches of the more cyclical/commodity earnings and investing behind the added-value operations (now 60% of profits versus 38% in 2007). Despite this the shares have seen no rating change, still trading 11-12x earnings.

"Perhaps the market requires evidence of growth to see this re-rating? Tate is investing for that right now. Certainly it looks to us that the business is in better shape and is being set up to deliver growth - there is rather more going on in the business than might be apparent from the P&L."

By 09:10 on Thursday, shares were up 2.74% at 692.97p.

BC

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