Can Tate & Lyle sales shrug off rise of weight loss drugs?
Published: 00:38 17 Feb 2024 AEDT
Tate & Lyle PLC (LSE:TATE), the maker of sugars and sweeteners, will be hoping the effect of a surge in weight loss drugs doesn’t leave a sour taste in its investors' mouths.
Ahead of a third-quarter trading statement on Wednesday 21 February, the food producer has been forced to contend with an unlikely rival in GLP-1 treatments.
The meteoric rise in Wegovy and Ozempic, two of the blockbuster drugs that can slow digestion and depress appetite, have led to shares in its owner Novo Nordisk (NYSE:NVO) jumping by more than 75% in the last year.
Tate & Lyle claims its sweeteners and fibres have removed 28 trillion calories from consumer diets since 2020, but analysts are concerned volumes of its sweet products could start to suffer.
“A chunk of Tate’s end market products, irrelevant of whether they’re offering slightly lower-calorie treats, are in the firing line if consumers simply don’t have the appetite to buy them,” said Matt Britzman, equity analyst at Hargreaves Lansdown.
In November, when the group updated on its second quarter, volumes were shown already to be falling across its core product range.
While some of this was caused by de-stocking, lower-end user demand and consumer downtrading, the effect from GLP-1s certainly had an impact.
Barclays analysts cut their underlying earnings estimates by 3%, leaving it 5% below consensus, due to the risk of the weight loss drugs.
It said the food ingredients manufacturer was the most exposed to the end-market categories in the US “where GLP-1 impacts on consumption and concerns on terminal growth prospects could be the highest.”
“In the short term, the GLP-1 cloud looms heavy overhead, and it’ll take some knockout performances for the light to punch through,” Britzman concluded.
