Jefferies International has cut its stance on Tate & Lyle PLC (LON:TATE) to ‘underperform’ from ‘hold’ on valuation grounds after reducing forecasts for the sweeteners and ingredients group to reflect headwinds “blowing into FY20”, but said it is not a ‘Mexico downgrade’.
The US bank said it has taken its estimates for the FTSE 250-listed firm down to 6% below the company’s guidance and 4% below market consensus.
READ: Tate & Lyle leaves bitter taste as it predicts flat EPS growth for 2020
In a note to clients, the Jefferies analysts also pointed out that US President Trump’s fresh trade spat with Mexico is unhelpful, but stressed that its changes were not a 'Mexico downgrade'.
They noted: “Just as the USMCA was to be signed comes a fresh row and associated threat of Mexico imposing retaliatory tariffs on US imports, among them HFCS (high fructose corn syrup).”
However, the analysts added, “the news is directionally in the price and Mexico looks not to be rising to the bait. But any worsening of the climate would be negative for sentiment and negotiation psychology in the 2020 pricing rounds.”
The Jefferies analysts also cut their target price for Tate shares to 620p from 720p, with the shares currently trading at 727.40p.
They concluded; “With Tate at a 30% valuation premium to near identical peer Ingredion, we turn negative.”