The speciality chemicals group Croda (CRDA) is something of a last man standing in the UK-listed companies in the sector. The company was founded in 1925 and today has a market cap of £4.90 billion and just over 6000 employees.
The current business is much different to the one founded almost a century ago, and the company now focuses on three diverse markets, which are Consumer Care, Industrial Specialties and Life Sciences.
The Consumer Care division makes ingredients that are used in a wide range of home care , cleaning and personal beauty products, as well as in fragrances and flavours.
Industrial Specialties makes a variety of surfactants and coatings, including emulsifiers, dispersants, wetting agents and detergents. Which have applications in areas such as water treatment, emulsions and polymerisation, fibre & fabric production, food & feeds, and advanced ceramics and electronics.
The Life Sciences business develops components and systems that enable the use of active pharmaceutical ingredients within the drug development life cycle. Taking treatments from early-stage testing through to commercialisation.
Croda’s products allow drug makers to deliver their pharmaceuticals to the parts of the patient that require treatment, and include protein and nucleic acid based delivery systems.
At its recent third quarter trading update Croda showed sales growth of +8.0% year over year, across the business as a whole. However the Industrial Specialties area delivered +14.0% growth in that period. Life Sciences and Consumer Care grew more slowly at +3.0% and +5.0% respectively.
Management maintained its forecast for profits before tax for the FY 2024, of between £260.0 and £280.0 million.
Croda will report full year numbers on Feb 25th 2025.
In terms of share price performance Croda has been in the wars with the stock down -30.46% year to date and by almost -65.0% over the last three years.
5-year earnings and revenue growth at the company have been patchy; revenue has grown by just over +4.0%, whilst earnings have dipped by almost -7.50% over the half decade.
There has been some dividend growth in that period, with the payout rising by +4.65% but of course that wouldn’t have kept pace with inflation.
In a note on the European Chemicals sector in early December JP Morgan was neutral on the stock, giving it a £38.75 price target.
Analysts at the US bank have below consensus earnings estimates on the company out to 2026. The bank also highlighted double digit, downward EPS revisions, in Croda from the wider market,over the next three years.
On the plus side Croda’s capex spending should peak this year, and could fall by as much as -22.0% in 2025, the third largest drop in the European Consumer Chemicals sector.
Croda stands on a forward PE of 25.50 times according to the JPM analysis, however that is forecast to fall to 19.50 times in FY 2026. At which point Croda would be valued- 20.0% below its peers in the European Consumer Chemicals space.
Croda Outlook
Outlook
Croda is an interesting business and there are signs of life in the share price, which has risen by more than 2.60% in the last week.
Having entered a quiet period ahead of its earnings in February, I think we can afford to keep a watching brief on the stock and look for genuine and sustainable signs of recovery when it does report, before jumping in, and for that reason I am scoring Croda at 3.5 out of 5.
Pros
- Diverse market segments
- Capex reduction ahead
- Life sciences growth
Cons
- Weak share performance
- Patchy earnings growth
- High valuation risks
-
Outlook
(3.5)
Overall
3.5
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