Broker tips: Tate & Lyle, Royal Mail, Ashmore

Analysts at Berenberg upped their target price on food ingredients manufacturer Tate & Lyle from 625.0p to 665.0p on Tuesday despite further reducing its full-year 2021 profit estimates for the group.

Following its 10% forecast reductions in March, Berenberg cut its 2021 forecasts on Tate & Lyle by a further 12%. However, the analysts were encouraged by news that trading in each of the group's divisions had been ahead of expectations during the fourth quarter and that its full-year earnings would be "slightly ahead" of guidance.

"As with peers, where Tate's FY 2021 earnings ultimately land will depend on the time frame of lockdowns and subsequent easing measures," said Berenberg.

"However, with significant divisional exposure to out-of-home consumption (20-50%) and some industrial end-markets, Tate's earnings are particularly sensitive, and we expect no rapid bounceback in volumes after Q1."

Tate & Lyle did acknowledge that trading in April had deteriorated sharply for Primary Products in particular - with North American sweetener volumes down by 26%.

The German bank, which reiterated its 'hold' rating on the group, now forecasts group volumes to be down by 5% in 2021 and earnings per share to be down 20% year-on-year.

Deutsche Bank upped its stance on Royal Mail to ‘hold’ from ‘sell’ on Tuesday, citing the potential risk of a bid after Czech billionaire Daniel Kretinsky - the owner of Sparta Prague football club and Czech energy utility EPH - took a 5.35% stake in the company.

"Our fundamental view on Royal Mail is that it is overvalued on a standalone basis and that the shares are fundamentally worth 93p, far below the current share price," DB said. However, following news that Kretinsky upped his stake in the company last week, the bank said there is potential for a bid.

Deutsche noted that through his investment vehicles, Kretinsky has taken stakes in French and German retailers Casino and Metro, as well as French newspaper Le Monde.

"We have no insight into his investment strategy but these investments suggest that Mr Kretinsky has a deep value strategy and this could explain his investment in the Royal Mail," it said. "We have no idea as to the strategy of Vesa Equity Investment for RMG going forward and whether they view RMG as just a financial investment or as an acquisition target.

"Mr Kretinsky's investment vehicles have taken investment stakes in companies such as Casino but also tried to acquire Metro, a deal that was rejected by shareholders.

"Given the potential risk of a bid for RMG, with the stock up 5.7% yesterday, even though we see little scope for any significant strategic changes at RMG, and in our view nothing that would technically block a potential deal (such as a golden share) other than shareholder approval, we move our recommendation from sell to hold."

The target price was lifted to 183p from 93p.

JPMorgan Cazenove downgraded its stance on shares of emerging markets investment manager Ashmore to ‘underweight’ from ‘neutral’ on Tuesday, cutting the price target to 310p from 350p as it said increasing uncertainty poses a risk to net fund flow recovery.

JPM pointed out that Ashmore experienced its first quarter of net outflows in the first quarter of 2020, following 12 quarters of inflows. "Based on Ashmore historical flow trends, cautious outlook on EM debt industry flows and Ashmore fund’s underperformance, we estimate net outflows will continue in the near term," it said.

The bank also said that it’s emerging markets strategy team is more cautious in the near term on the region and that this could have a negative impact on increasing exposure to emerging markets over the coming months.

JPM cut its FY20/FY21 earnings per share estimates by 11% and 6%, respectively, partly reflecting lower flows.

"Ashmore shares trade on CY20E price-to-earnings of circa 16x versus European asset manager sector on circa 13x, and whilst a premium over the long term may be justified we believe given the current weaker flow backdrop such a premium is not warranted," it said.