Shares in Tate & Lyle may have fallen today (1 February) in the wake of the latest trading update from the UK food-ingredients group but City analysts were pragmatic about the company’s performance.

Tate & Lyle’s stock was down 1.7% at 542p at 17:16 in London this afternoon after the company said rising corn costs had weighed on margins and would hold back further reductions to the group’s debt.

The company’s shares have been buoyed in recent weeks from speculation linking the business to a possible takeover bid from US agribusiness giant Cargill.

Investec analyst Martin Deboo said Tate & Lyle’s trading update was “solid” and “consistent” with the company’s forecasts for the current 2010/2011 fiscal year and the following 12 months.

However, he added: “Given strong share price performance over the last month, allied to what we think is a ‘sidegrading’ statement, we think we might see some profit-taking this morning.”

Tate & Lyle had indicated that margins in Europe had been affected by rising corn costs but Deboo explained: “With corn sweetener prices in Europe rising, on the back of a rising sugar price and processing capacity tightening, Tate sees some prospect of higher margins in Europe in fiscal year 2011/12.”

Nevertheless, Panmure Gordon analyst Graham Jones said the rise in corn costs and led him to up his forecast for annual net debt from GBP495m (US$798.8m) to GBP535m – against GBP462m in December 2010.

That said, Jones said Tate & Lyle’s trading update was in line with expectations and meant he expected to not to have to make any “material change” to his forecast for annual pre-tax profits of GBP246m.

On the recent speculation linking Cargill to a possible bid for Tate & Lyle, Jones added: “We are sceptical of the story that seems to have been doing the rounds about a Cargill bid for Tate, given that would presumably lead to competition concerns in US corn processing, although we do accept that consolidation could happen at some point. We are nudging our [share] price target up from 540p to 570p, but maintain our ‘hold’ recommendation.”