Down 14% in the past month! What’s happening to the share price of this British FTSE 250 icon?

I dig deep to discover why this incredibly popular FTSE 250 Index Stalwart lost 14% of its share value last month. Dad and Lyle‘s (LSE: TATE) is a 100-year-old brand found in kitchens and bakeries across the country. Its golden syrup is renowned in the UK as the preferred option for biscuits, tarts and puddings.

But since its 2023 rebrand, the food and drink maker has hit some snags. The push to become more sustainable and appeal to health-conscious consumers is proving costly. It could pay off in the long run — but it won’t be an easy feat.

Strong growth

Despite the positive results in late May, Tate & Lyle shares fell 14% in June. This brings the total share price loss to 17% since the company last announced its financial results for the year.

Despite a 2% drop in revenue, earnings per share (EPS) rose to 45p from 31p, beating analysts’ expectations by 8.8%. Profit margins and net income rose by 7.3% and 41% respectively.

It also announced the completion of the sale of its remaining stake in Priment, a high-fructose corn syrup brand. The move will help it focus more fully on its more profitable specialty foods and beverages business.

As is often the case with these types of sell-offs, the net proceeds were used to fund a share buyback program. That should be good news for investors, providing a large cash inflow into the stock.

So where does this decline come from?

With all the good news, investors would expect the stock to go up, not down. So where does the loss come from?

One reason could be the announcement that the company plans to buy CP Kelco for £1.5bn. The acquisition would be part of a shift towards more sustainable and healthier foods. Kelco sells pectin and similar natural gums and ingredients.

But the takeover is unusual for a company like Tate & Lyle. It’s a lot of money, considering it has a market capitalisation of just £2.4bn and is already half a million in debt. Shareholders may fear dividends will be cut to help fund the takeover.

Growth in the Face of Competition

Whatever the reason for the price drop, it means that Tate & Lyle shares look like a bargain to me right now. Based on future cash flow estimates, the stock is 42% undervalued. And with a price-to-earnings (P/E) ratio of 13.2, it’s well below the industry average of 18 and has plenty of room to grow. As a result, analysts agree that the stock will rise 40% over the next 12 months.

But it is not the only food producer in the UK. It faces stiff competition from other brands that are already arguably more sustainable. Best Food is a slightly smaller team that has enjoyed growth of 318% over the past five years. Known for Mr. Kipling cakes and Oxo cubes, has been implementing a well-established sustainability initiative called “Enriching Life” since 2020.

Tate & Lyle will have to catch up if it wants to compete. The price looks cheap, and the company has strong value in its established brands. But changing to appeal to a new generation of more health-conscious consumers will certainly test the company’s reserves. Nevertheless, I think it’s worth considering.