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FTSE slumps again while Tate & Lyle loses 17% after profit warning

This article is more than 9 years old
Poor data, US tax moves and warning from sweetener group unsettle investors

With markets heading south again on fading hopes of healthcare bids and poor eurozone manufacturing surveys, the day's big loser so far is Tate and Lyle after a shock profit warning.

The group said disruption in its supply chain and increased competition for its Splenda sucrolose sweetener in the second quarter would hit its full year results. It said it expected additional costs of around £20m in the second quarter taking the total for the first half to £40m. There would be an additional £10m of costs in the second half, meaning it now expected full year profits to be between £230m and £245m. Analysts had been expecting a figure of around £293m.

It blamed supply constraints following a severe winter in the US leaving it with much lower than usual inventories. There was also a prolonged shutdown of its sucralose plant in Singapore. It said:

The disruption to our global supply chain persisted longer than we anticipated, caused by challenges in our plant network, low absolute levels of inventory and misalignments between customer demand and inventory available (particularly from the emerging markets.)

Chief executive Javed Ahmed said he had started an immediate review of our planning and supply chain processes. The news has sent Tate's shares plunging 17% or 127p to 605.5p. Mike van Dulken at Accendo Markets said:

Tate & Lyle is today's Tesco after delivering a profits warning linked to a challenging start to the year following supply chain disruption and increased competition. While supply constraints were highlighted in July's update they lasted longer than predicted and, with management describing the first half as extremely disappointing and this being the second warning in 2014, shareholders have said enough is enough and dealt the shares the same punishment as they did in February by lopping another 17% from the share price.

Overall the FTSE 100 has dropped 70.21 points to 6703.42, its lowest level since 15 August. A slightly better than expected Chinese manufacturing survey, showing mild expansion rather than the feared contraction, has been outweighed by disappointing European numbers. French business activity contracted in September and Germany;s manufacturing sector grew at its slowest pace since June 2013.

On top of that, a number of healthcare shares have been hit by overnight news that the US has introduced new rules to reduce the benefits available to its companies buying overseas businesses for tax reasons.

This makes deals for AstraZeneca, pursued by Pfizer, and Shire, being acquired by AbbVie, and Smith and Nephew, less attractive, said traders. So AstraZeneca has dropped 238p to 4339.5p, Shire is down 340p to £48.90 and Smith & Nephew is off 32p to £10.36.

The three accounted for around 20 points of the FTSE 100's fall.

Meanwhile Tesco has lost another 5p to 198p despite parachuting in new finance director Alan Stewart several weeks early. A number of analysts cut their target prices, including Exane BNP Paribas, Nomura, JP Morgan and Deutsche Bank.

But with the Chinese figures coming in better than expected, mining shares have regained some ground, with Randgold Resources rising 50p to £43.15 and BHP Billiton 16.5p better at £17.47.

Go-Ahead has accelerated 70p to £25.13 after Deutsche Bank moved from hold to buy and raised its target price on the transport group from £22.70 to £27.90. The bank said:

We are revising our forecasts for the Thameslink (GTR) win and Southeastern extension. GTR adds both a significant and relatively low risk earnings stream (because Go-Ahead is not taking passenger revenue risk) albeit cost execution risks on integration are potentially high. The Southeastern direct award is an expected but outright positive that extends refranchise risk and resets the margin to a typical 3% from our estimate of less than 1% currently. On our forecast changes we believe consensus for 2016 plus is potentially too low. As such we upgrade to buy, albeit with a view that greater long-term value will be attributed to new bus targets which are as yet unannounced.

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