4th Apr 2022 14:48
(Alliance News) - Amidst current stock market volatility, Hargreaves Lansdown highlighted two UK-listed stocks, Royal Mail PLC and Tate & Lyle PLC, as having "compelling turnaround potential".
"Stock market uncertainty is rife, as geopolitical tension and worries about inflation weigh on sentiment. Bargain hunters have started sniffing around some of the market's beaten down stocks, but are there truly any undervalued diamonds in the rough?" questioned Hargreaves analyst Laura Hoy.
Against this backdrop, Royal Mail and Tate & Lye are "worth a closer look".
Postal operator Royal Mail stepped into its stride during the pandemic, with consumers turning to online shopping during lockdown and, in turn, boosting parcel volumes.
"The pandemic offered Royal Mail an opportunity to supercharge its operations. The structural shift away from sending letters meant the group had to find a way to put parcels at the heart of its operations. So far, its progress has been impressive," said Hoy.
The most significant improvement has been the firm's relationship with unions, she highlighted. However, she added: "The market's not convinced that the group can pull off its efficiency drive. Shares change hands for just six times expected profits. There's also an attractive yield on offer. But investors should keep in mind, if the Unions become disgruntled, Royal Mail's plans will be thrown through a loop."
Tate & Lyle, meanwhile, is well-positioned to expand into the growing sugar-alternatives after a strategic shake-up.
On Friday, the food and beverage ingredients provider said it had completed the sale of a controlling stake in its Primary Products business in North America and Latin America and its subsidiaries, Primient, to New York-based investment company KPS Capital Partners LP.
The sale was originally announced in July and will create two focused, stand-alone businesses, Tate & Lyle and NewCo. Tate & Lyle and KPS will each own 50% of NewCo with KPS having Board and operational control.
It intends to return GBP500 million to Tate & Lyle's shareholders through a special dividend and associated share consolidation, it said.
"Tate & Lyle looks to be on the brink of a fully-fledged turnaround. As long as management can stay the course and use its new cash pile wisely, the group could be on track for impressive growth," said Hoy.
However, she flagged that Tate & Lyle is dependent on corn, of which Ukraine is a major exporter. Corn prices have soared recently following Russia's invasion of Ukraine, which could eat into margins.
"In the short term, the group's previously agreed contracts should protect against too much disruption," said Hoy.
Shares in Royal Mail were up 0.2% at 329.00 pence in London on Monday, the stock down 34% over the past year, while Tate & Lyle shares were up 0.6% at 734.20p on Monday, and down 5.0% over the past 12 months.
By Lucy Heming; [email protected]
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