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Summary of Q325 results Q3 sales of GBP425m came in 2% ahead of consensus. Constant currency growth of +6.5% was driven by LDD volume growth and a MSD decline in price/mix due to negative mix, following a similar pattern to H1. Management still expects a recovery to pre-COVID utilisation levels across its shared sites by the end of 2026, pointing to a gradual downward normalisation in volume growth but gradual improvement in price/mix through the year. The small topline beat in Q3 was led by Consumer Care (+8% constant currency growth) including an improvement in Beauty Actives and continued strength in FandF. In Life Sciences, growth of +6% was driven by Crop whilst Pharma and Seed were flat. News Croda reiterated guidance for FY25 PBT of GBP265-295m at constant currencies with an expected FX translational headwind of GBP-10m and transactional headwind of GBP-10m. On the call, management endorsed current consensus PBT of GBP269m. Earnings and target price We make limited changes to FY25 estimates and nudge down FY26 by -1%. Our target price is unchanged at GBp2,900. Investment thesis and rating Volumes are recovering after a period of prolonged weakness however Croda''s margin recovery is lagging due to incremental fixed costs and price/mix headwinds. Shares are trading at a ~30% discount to LT history but with continued low visibility and slow margin recovery, we stay Neutral. 15 questions for management Croda has been in a cost conscious mode for several years now, can you share more details on the GBP100m cost savings plan by end of 2027? What is the expected net savings impact in 2025 / 2026 (net of investment costs)? How will savings be allocated across the three divisions?
Croda International Plc
BNPP Exane View: Q3 sales came in 2% ahead with constant currency growth of +6.5% vs Bloomberg consensus +4.4%. The small topline beat was led by Consumer Care including an improvement in Beauty Actives and continued strength in FandF. Management reiterated FY25 constant currency PBT guidance of GBP265-295m. Shares have picked up slightly in the past month following the Standard Latitude shareholding disclosure (see our quick thoughts Activist pressure to come?). Overall: today''s print likely seen as reassuring for a name which has been unloved for some time. Headline figures . Q3 sales: GBP425m, 2.2% vs cons . Q3 constant currency sales: +6.5% vs cons +4.4% (vols LDD, negative mix, LFL prices largely consistent with prior year) Note: Consensus estimates are as per Bloomberg. Top line drivers . Q3 Consumer Care revenues: GBP242m, 3.2% vs cons . Q3 Consumer Care constant FX growth: +8.1% vs cons +5.4% . Q3 Life Sciences revenues: GBP134m, 1.5% vs cons . Q3 Life Sciences constant FX growth: +5.9% vs cons +5.1% . Q3 Industrial Specialties revenues: GBP49m, -0.7% vs cons . Q3 Industrial Specialties constant FX growth: +1.2% vs cons +2.3% Bottom line drivers Croda only reports sales in Q3 Other . Cost savings: on track to achieve GBP25m (gross) savings in 2025, GBP100m p.a. by end of 2027. ''The progress we are making to enhance our operational efficiency underpins our confidence in being able to deliver annualised cost savings of GBP100m by end of 2027, contributing to margin recovery'' . Tariffs: ''The imposition of US trade tariffs has contributed to volatility in quarterly performance by region, adversely impacting customers'' export sales in certain regions, particularly in pharma and industrial markets in Asia, and in agriculture markets in Latin America.'' Outlook FY25 guidance unchanged for constant currency PBT of GBP265-295m. FX translation headwind expected to be ~GBP10m at current rates and transactional currency expected to have an...
What happened? This afternoon Standard Latitude Master Fund disclosed a 5.48% stake in Croda (2.54% equity and 2.93% via financial instruments). Croda shares rose +5% on the back of the news. Standard Latitude Master Fund is an investment vehicle for Standard Industries, which has made several investments in the chemicals industry over the years. Most recently, they took a stake in UK chemicals business Johnson Matthey, where they pushed for a strategic review which ultimately led to the sale of the Catalyst Tech business. BNPP Exane View: The background on Standard Industries: Standard Industries has made several investments in the chemicals industry over recent years including the acquisition of US chemicals company WR Grace and briefly held a stake in Clariant. Most recently, Standard Industries took a ~11% stake in Johnson Matthey over period of several years, eventually writing an open letter to management in late 2024 calling for a refresh of the board and a strategic review, including but not limited to a potential sale of all or part of the company. In 2025, Johnson Matthey announced a change in Chairman and the divestment of its Catalyst Tech business. Whilst successful in implementing change, we note Standard Industries halved its stake over the summer at a share price level similar to their entry price in April 2022 (initial ~5% stake) and Sept 2023 (additional ~5% stake). Croda''s current CFO, Stephen Oxley, was previously CFO of Johnson Matthey during this period. Potential implications for Croda: We wait to see any further action from Standard Industries. We note they held shares in Johnson Matthey for two years before launching a public activist campaign. After several disappointing years of operational and share price performance at Croda, having new and potentially activist shareholders is not a bad thing to increase pressure on management to execute. We think activist pressure could push Croda to accelerate or even...
Summary of Q225 results Q2 constant currency sales growth of +6% was in line with expectations, with Consumer Care constant currency growth of +7% (led by FandF), Life Sciences +6% (led by Crop and Seed) and Industrial Specialties +2%. H1 PBT was also in line at GBP138m. Whilst volumes were better than expected, the market focus was on the negative price/mix (-4% in H1), raising concerns around increased competitive pressure as Croda implemented selective price reductions to (re)gain market share. News Management reiterated guidance for FY25 PBT of GBP265-295m at constant currencies. Consensus is around the midpoint at GBP272m, including an assumed GBP10m FX headwind. Croda introduced an incremental GBP60m cost savings, now targeting a total of GBP100m p.a. by end of 2027. Earnings and target price We tweak FY25/26 estimates by -1% but lower our target price to GBp3200 from GBp3480 reflecting a lower target multiple in Consumer Care. At our target, shares would trade on 11.5x 2026 EBITDA, below its LT average of ~15.5x. Investment thesis and rating Volumes are recovering after a period of prolonged weakness, however Croda''s margin recovery is lagging due to incremental fixed costs and price/mix headwinds. Shares are trading at a ~30% discount to LT history, but with continued low visibility and slow margin recovery, we stay Neutral. 15 questions for management How much of the -4% price/mix impact in H1 reflects price vs mix? Do you anticipate further tactical price reductions to drive volume growth in H2? How do we reconcile your strategic price reductions with your value based pricing strategy?
BNPP Exane View: Focus of the QandA was on the new cost savings plan and the selective price give back in parts of Beauty and Crop. We suspect the latter is driving the negative share price reaction post call on concerns of increased competition as management pointed to selective price give back to gain / in some places regain market share. Highlights: QandA . Working cap: Inventory build in H1 (pre tariffs, ahead of growth, planned shutdowns) but overall level is too high, see scope to optimise . Commercial excellence: Have a profitable tail but see an opportunity to improve further, will look to simplify SKUs, lowering costs to serve with smaller customers . Utilisation: Beyond 11 shared sites, have some small sites in Iberchem and fine with op leverage. In Pharma want to improve capacity in Denmark, happy with Avanti. Focused on growth in Sederma rather than utilisation rates. CFO not worried about utilisation . New capacity in pharma: Initially transferring capacity to Lamar from Avanti to use Avanti as a research base. New Consumer Care technologies in Lamar as well . New head of Life Science: Will refresh strategy with subtle changes. Refocusing on heritage pharma. Management is aware they want to update the market on the equity story when the time is right . Pharma industry innovation: See increased uncertainty in US but Chinese gov putting more money in pharma industry. Croda has local RandD in China, will utilise Korea and Lamar US to serve the Chinese market . Cost savings: GBP100m annualised savings, partly offset by inflation (e.g. 15m p.a.) and further start-up costs . Pricing: Price give back in the non-differentiated parts (20% in crop across 4 customers, 20% in Consumer Care across 10-15 customers). Regaining market share where they lost it in Beauty, see direct correlation between volume improvement and where they gave back price. Price/mix of -4% also reflects negative mix . H2 outlook: See Q2 as a normalised period, so expect H2...
BNPP Exane View: An in line print with H1 PBT of GBP138m vs. company consensus of GBP137m. FY guidance reiterated, pointing to GBP270m at the midpoint including FX which is broadly in line with co. consensus at GBP272m. The company also announced new cost savings with an incremental GBP60m of savings taking the total benefit to GBP100m p.a. by end of 2027. The company had been pointing to upside to its previous savings targets, but the new quantified targets should be a positive today. We think an in line print should be well received given Croda''s recent track record, and we would expect a positive reaction this morning, albeit potentially muted by the possible MSCI Standard Developed Europe index deletion (to be announced 7th Aug). Headline figures . Q2 sales: GBP414m, -0.4% vs cons . Q2 constant currency sales: +6% vs cons +5.9% . H1 operating profit: GBP147m, -1.4% vs cons, 1.9% y/y. Operating margins 17.2% (vs cons 17.4%) . H1 PBT: GBP138m, 1% vs cons . H1 EPS: 72p, -0.4% vs cons Note: Consensus estimates are as per company consensus. Constant currency estimates are as per Bloomberg although we note a small number of contributors. Top line drivers . Q2 Consumer Care revenues: GBP237m, 0.9% vs cons . Q2 Consumer Care constant FX growth: +7% vs cons 4.8% . Q2 Life Sciences revenues: GBP127m, -2.3% vs cons . Q2 Life Sciences constant FX growth: +6% vs cons 7.9% . Q2 Industrial Specialties revenues: GBP50m, -0.6% vs cons . Q2 Industrial Specialties constant FX growth: +2% Bottom line drivers . H1 Consumer Care EBIT: GBP86m, -2.4% vs cons with a margin of 17.4% (vs cons 17.9%) . H1 Life Sciences EBIT: GBP56m, 2.4% vs cons with a margin of 21.5% (vs cons 20.7%) . H1 Industrial Specialties EBIT: GBP5m, -20.3% vs cons Other . Cost savings: identified further GBP60m savings, total savings of GBP100m p.a. by end of 2027 (see slide 26 for phasing). On track to deliver the previously identified GBP25m of savings this year with GBP10m achieved in H1....
Summary of Q125 sales Q1 constant currency growth was +9% (vs consensus of +6.4%) led by volumes. Consumer Care grew +8% in constant currencies led by FandF (+19%) while Beauty Care and Home Care grew MSD. Life Sciences grew +11% driven by Crop Protection and Seed Enhancement. Management also commented that Q1 PBT was in line with expectations. News Management reiterated its guidance for FY25 PBT of GBP265-295m at constant currencies whilst acknowledging increased global macro uncertainty due to US tariffs. If necessary, Croda would expect to apply a surcharge to cover any incremental costs from tariffs. Utilisation across its 11 shared manufacturing sites has continued to improve, and Croda is on track to implement GBP25m of cost savings this year as part of its previously announced multi-year savings programme. Earnings We lower estimates -2%/-3% in FY25/26 on FX and assuming weaker volumes in Consumer Care. Investment thesis and rating Volumes have stabilised following material weakness and subsequent operating leverage headwinds in recent years. Shares have pulled back to a 30% discount to LT history but with continued low visibility, we stay Neutral. Target price We cut our target price to GBp3480 from GBp3,800. 15 questions for management Can you discuss which parts of Croda''s business are more resilient / vulnerable in an economic downturn? To what extent is downtrading in beauty a positive or negative for Croda?
BNPP Exane View: Overall, a reassuring message; management acknowledged that the macro outlook is uncertain and order book visibility is low but is confident that the broad based Q1 strength does not reflect pre-buying ahead of tariffs and that it would expect to manage any tariff related costs with surcharge pricing. Highlights: QandA . Q1 organic: All volume growth, slightly negative price (very LSD) . Pricing: In the past few years, pricing has been a function of raw mat inflation not competition. Raw mat background is more stable today. Gross margins are v stable . Tariffs: Direct revenue flows: less than GBP97m revenues flowing from EU/UK to US. GBP15m of revenue related to US to China flows, most of which can be made in Europe or Asia for China . Tariff surcharges: A lot of engagement with customers. Would implement immediate surcharges if necessary. . Customer relocation: Customers are looking to relocate production to circumvent tariffs. Croda needs to i) be clear on tariff surcharges so that customers can assess relative cost of relocation and ii) ensure stock is in the right place. Continue to see shift towards local and regionals customers and expect tariffs to drive this as well. Stepping back the question mark on tariffs is impact on consumer confidence. . Order books: Order book visibility is still low, 4 weeks. Q2 may well be below Q1 but expecting continued good sales growth . Q2: No evidence of deterioration in order book but their comments reflect the macro uncertainty and ''mood music''. Staying close to customers in the right way and supporting any customer relocations. Still expect good sales growth, gradual improvement in core markets. Tracking sales daily and nothing to suggest that there is a significant softening of orders or an acceleration of pre-buying . Stocking: Don''t see tangible evidence of pre-buying. 80% of revenue in Consumer care is with local and regional customers and have good line of sight . Margins: Q1...
BNPP Exane View: Q1 sales came in 3% ahead of (limited) consensus with constant currency growth of +9% (cons +6.4%). Guidance unchanged for constant currency PBT of GBP265-295m with consensus at GBP285m. We think a decent Q1 was expected (and visibility is still low) but shares have underperformed YTD and today''s print should justify a bit of relief for shares. Key will be any incremental colour on current trends on the call at 7.30 BST bearing in mind their outlook comments that the ''recent introduction of trade tariffs and increased geopolitical tensions have made the global economic more uncertain''. Headline figures . Q1 sales: GBP442m, 3.1% vs cons . Q1 constant currency sales: +9% vs cons +6.4% Note: All consensus estimates are as per Bloomberg unless stated otherwise although we note a small number of contributors Top line drivers . Q1 Consumer Care revenues: GBP255m, 4.8% vs cons . Q1 Consumer Care constant FX growth: +8% vs cons +4.3%. Led by volumes and continued strong demand from local customers. . Q1 Life Sciences revenues: GBP134m, 0.5% vs cons . Q1 Life Sciences constant FX growth: +11% vs cons +10.8%. Crop Protection and Seed Enhancement delivered strong sales growth, Pharma sales were also higher driven with biopharma offsetting continued challenges in consumer health and vet . Q1 Industrial Specialties revenues: GBP53m, 0.8% vs cons . Q1 Industrial Specialties constant FX growth: +6% led by volumes Bottom line drivers Croda only reports sales in Q1 but flags that Q1 adjusted PBT was in line with expectations. Other . Asset utilisation: Utilisation across the 11 shared manufacturing sites has continued to improve . Cost savings: On track to implement GBP25m of cost savings this year as part of its previously announced multi-year savings programme . Tariffs: ''Although our well-balanced local manufacturing and procurement model helps to mitigate our direct exposure to tariffs, we are assessing the likely impact, talking to our...
Summary of H224 results Croda reported H224 PBT of GBP133m, -24% y/y but +6% ahead of consensus. Constant FX sales growth was ~+2.6% in H2 driven by volumes. Consumer care grew +7.7% in constant currencies driven by growth with local and regional customers and FandF. Life Sciences declined -11.6% (including the absence of COVID lipid sales) but with a sequential recovery led by Crop. News For FY25, management guides to a PBT range of GBP265-295m at constant currencies. At the midpoint, this assumes MSD topline growth led by volume and a small y/y improvement in margin. Croda introduced a GBP40m cost savings programme over FY25/26 which will help to offset higher inflation and investment costs. Earnings We lower EPS estimates by -3%/-4% in FY25/26 on lower Consumer Care margins. Investment thesis and rating Volumes are starting to stabilise following material weakness and subsequent operating leverage headwinds in recent years. Shares are trading at a 20% discount to its LT history however with continued low visibility, we stay Neutral. Target price We lower our target price to GBp3,800 from GBp3,900 on the earnings cuts. 15 questions for management Management noted that average price points are higher with local and regional customers vs MNCs and gross margins are 200-300bps higher on average. How do operating margins compare between LandR and MNCs bearing in mind the higher costs to serve LandRs?
BNPP Exane View: Management emphasised a step up in self help actions (investment, cost savings etc) to drive earnings growth against stabilising markets. Key focus for the call was on the utilisation rates across the 11 shared assets where management expects a two year recovery to pre COVID utilisation levels. Highlights: QandA . Midpoint of guide: MSD revenue growth with a bit of margin improvement. Bottom end assumes LSD revenue growth and no margin improvement. High end assumes HSD volume improvement and more margin improvement. Macro environment not improving but markets are starting to stabilise (inventory and demand). Starting to see pathway back from crop, expect gradual improvement. New pharma is growing well, expect consumer health to start to improve . Seasonality: expect back to normal delivery not H2 weighted. Historically 53/47 H1/H2 but might be less seasonality this year. Haven''t seen customers ordering ahead of US tariffs (GBP100m of revenue from UK into US so relatively limited exposure to tariff risk) . Shared site volumes: encouraged with start of the year, exit rates in Q4 were helpful and has continued in Jan/Feb but still too early given volatility and 4-6 week order book visibility. Util rates ~69% on average in FY24. Expect it could take 2 years to get back to 80% pre COVID levels. All else being equal, expect low 20s operating margins if only focused on shared 11 sites utilisation recovery and then rest driven by mix, cost control. . Pharma: Seeing more MRNA projects coming forward driven by 12-15 pharma companies and well positioned with all. Expect to see build in sample revenues in 2025. Expect CMD later in the year and would expect to provide further update on pharma . Beauty care: winning share in volume with both LandRs and MNCs. Have learned that they need to be more flexible at bottom end. 2/3 of price/mix was due to raw mat deflation, -3% related to giving price back with MNCs. But see larger gross margin of 2-3%...
BNPP Exane View: FY24 PBT of GBP260m came in 2% ahead of consensus led by Life Sciences. For FY25, Croda guides to a constant currency PBT range of GBP265-295m, LSD % below consensus at the midpoint. Shares have been weak but the guide looks on the underwhelming side and unlikely to excite today. Headline figures . Q4 sales: GBP405m, -1.2% vs cons . Q4 constant currency sales: -2% vs cons 0% . H2 operating profit: GBP144m, 2.6% vs cons, -0.1% y/y. Operating margins 17.7% (vs cons 17.2%) . FY PBT GBP260m, +2% ahead of consensus . FY FCF: GBP181m, +22% y/y . FY DPS: GBp110, in line with consensus Note: All consensus estimates are as per Bloomberg unless stated otherwise Top line drivers . Q4 Consumer Care revenues: GBP224m, 0.6% vs cons. Constant FX growth of +8.5% . Q4 Life Sciences revenues: GBP129m, -7.8% vs cons. Constant FX growth -24% including COVID lipids effect . Q4 Industrial Specialties revenues: GBP53m, 14.3% vs cons Bottom line drivers . H2 Consumer Care EBIT: GBP78m, -3.4% vs cons with a margin of 17.2% (vs cons 17.9%) . H2 Life Sciences EBIT: GBP59m, 9.7% vs cons with a margin of 22.9% (vs cons 19.7%) . H2 Industrial Specialties EBIT: GBP7m, 15.6% vs cons Other . Net debt: GBP532m vs 508m at H1 (1.4x net debt/EBITDA, within target range of 1-2x) . Cost savings: introducing an initial two year GBP40m cost savings programme, GBP25m savings in 2025 and GBP15m in 2026. Outlook FY25 guidance is for constant currency PBT of GBP265-295m. This assumes sales growth in Consumer Care and Life Sciences (driven by volumes) contributing GBP20m to PBT at the midpoint and GBP10m inflation and GBP15m investment offset by GBP25m in modernisation and operational efficiencies. Company consensus is at GBP289m and Bloomberg consensus is at GBP293m so this implies a 3-5% downgrade or slightly less assuming a small FX tailwind. FX sensitivity: GBP1m impact on operating profit per US dollar cent and Euro cent move p.a. The guidance is based on average...
Summary of Q324 sales Croda Q3 sales were GBP407m, +5% y/y and +2% vs consensus. Constant FX growth was +8% y/y (VA cons +6.9%) driven by volumes. Consumer Care grew +7% in constant currencies (vs cons +9.6%) driven by ongoing momentum in FandF and Home Care, with good demand from local customers in Beauty but lower demand from MNCs compared to the previous quarter. Life Sciences grew +6% (vs cons +0.2%) driven by higher sales in both Crop Protection and Seed. News Management reiterated its FY24 PBT guidance range of GBP260-280m at constant currencies. FX is now expected to be a GBP-14m headwind vs GBP11.5m previously based on rates as of 30th Sept. The company flagged improving volumes in Ag thanks to more stable customer inventories. Earnings We lower estimates by -3%/-5% in FY24/25 reflecting lower margins and FX. Investment thesis and rating Volumes are starting to stabilise following material weakness and subsequent operating leverage headwinds in recent years. Shares are trading at a 5-10% discount to its LT history however with continued low visibility, we stay Neutral. Target price Our target price moves to GBP4,300/share from GBP4,460. 15 questions for management To what extent should we be concerned by slowing q/q demand with MNC beauty customers in Q3? Do you think this reflects market share loss to local and regionals customers (given continued good demand in Q3) or weakness in the underlying market?
Summary of Q2 / H124 results Croda Q2 sales were GBP407m, +1% y/y and -4% vs consensus. Constant FX growth was +1.8% y/y led by growth in Consumer Care (+7.7%) driven by volumes, whilst Life Sciences declined (-4%) due to destocking in crop protection and consumer health. H1 operating profit was GBP136m, -23% y/y with margins of 16.6%. H1 PBT was GBP127m, -27% y/y and +1% vs consensus. News For FY24, management narrowed the PBT guidance down to GBP260-280m at constant currencies, with an incremental GBP5m FX headwind in H2 based on rates as of 1st July. This compares to previous guidance of GBP260-300m. The downgrade was driven by Life Sciences as there are no signs of an immediate recovery in Crop Protection following the destocking. Earnings We slightly downgrade FY24 estimates driven by Life Sciences and higher financial expense. Investment thesis and rating Croda''s business has historically demonstrated good pricing power, sector-leading margins and strong cash generation. The portfolio is well positioned to benefit from longer term sustainability trends in Consumer Care and high growth markets in Healthcare. However with near term earnings headwinds and a premium valuation vs peers, we have a Neutral rating. Target price Our TP goes to GBp4,550/share from GBp4,600 driven by small changes to our SOTP assumptions. 15 questions for management Croda indicated that Crop was mainly impacted by destocking by 4-5 big customers. What are you seeing amongst your local and regional customers which now account for 56% of Crop revenues?
Summary of Q124 sales Croda Q1 sales were GBP409m, 14% y/y and +8% q/q. This was a -7% miss vs (limited) consensus expectations and -1% vs our expectations. Constant FX growth was -10% y/y. Compared to our and company expectations, Life Sciences lagged whereas Consumer Care and Industrial Specialties were ahead. Life Sciences was impacted by destocking, COVID normalisation and tough comps. News For FY24, management continues to guide to a PBT range of GBP260-300m (VA and company cons are at the midpoint at GBP280m vs our GBP269m). Operating profit margins are still expected to decline -200-300bps y/y due to mix and higher costs. Earnings Limited; upgrades in Consumer and Industrial Specialties offset by downgrades in Life Sciences. Investment thesis and rating Croda''s business has historically demonstrated good pricing power, sector-leading margins and strong cash generation. The portfolio is well positioned to benefit from longer term sustainability trends in Consumer Care and high growth markets in Healthcare. However with near term earnings headwinds and a premium valuation vs peers, we have a Neutral rating. Target price Our target price remains unchanged at GBp4,900/share. 15 questions for management Can you provide an update on recent pricing initiatives and whether they have helped to regain lost market share in Consumer Care?
Summary of H223 results Croda reported H2 PBT of GBP135m, a decline of -34% y/y although 5% ahead of lowered consensus. On a FY PF basis, volumes declined -16% with price/mix +5%. Sales performance continued to be impacted by destocking and lower demand. Adj EBIT margin declined -580bps y/y (-460bp y/y in H2) driven by negative volume leverage, lower Covid-19 lipid sales and mix. News For FY24, management guides to a PBT range of GBP260-300m (-4% vs cons at the midpoint). At the midpoint this implies flat y/y performance, ex the impact from Covid sales. The guide assumes mid to high SD topline growth but operating margins -200-300bps y/y due to mix and higher costs. Earnings We lower our FY24 PBT estimate by -6% reflecting cuts in both Consumer Care and Life Sciences. Investment thesis and rating Croda''s business has historically demonstrated good pricing power, sector-leading margins and strong cash generation. The portfolio is well positioned to benefit from longer term sustainability trends in Consumer Care and high growth markets in Healthcare. However with near term earnings headwinds and a premium valuation vs peers, we have a Neutral rating. Target price Our target price moves to GBp4500 from GBp4,580/share. 15 questions for management Croda believes 80% of its portfolio in Consumer Care is differentiated whilst 20% is less differentiated. Can you give more details on your portfolio assessment and discuss how you plan to manage the less differentiated portfolio going forward (different KPIs)?
Lowering estimates post most recent guidance update We update estimates following the guidance update in late December and our recent catch up with the company ahead of results. We make small cuts to FY23 PBT estimates (-2%) but larger cuts to FY24 (-11%) reflecting the lower ''exit rate'' out of 2023 plus higher assumed costs and continued destocking in Crop Care. We lower our target price to GBp4,580 from 5,000 and maintain our Neutral rating. Croda is due to report FY23 results on 27th February. First in but last out on the destocking trend As per communication in late December, Croda expects FY23 PBT to be at the lower end of the guidance range of GBP300-320m. This implies a decline in H2 of ~30% h/h or ~40% h/h excluding the Pfizer contract, reflecting weak volumes, negative operating leverage, mix and incremental FX headwinds (incl Argentina). Investor sentiment had been negative following several warnings through 2023 but it is fair to say that any signs of ''green shoots'' have not materialised as some had hoped. As per our comments in our recent sector note, it seems that Croda may be the first in but last out on the destocking trend, particularly with continued destocking in Crop in H1 24. Improved operating leverage in 2024 may be offset by higher costs Croda reiterated expectations for improved volumes and operating leverage in 2024. However they also reminded us of the ~GBP50m variable cost headwinds in FY24 vs 23 assuming higher variable remuneration, depreciation and labour costs. We forecast FY24 PBT of GBP288m, -5% y/y. We have a Neutral rating Shares are now trading on 32x 2024 PE, 18x EV/EBITDA at a premium to Specialty Ingredients on 28x and 16.5x respectively. With shares down ~55% from the late 2021 peak we think a lot of the bad news is well flagged, but it is hard to get excited bearing in mind continued earnings headwinds and a tough comp in Healthcare with the phase out of the COVID vaccine contract.
Another warning: a combination of destocking and weak demand trends Croda issued another profit warning, guiding to FY23 PBT of GBP300-320m, around 15% below consensus which was just below the previous guidance of GBP370-400m.The downgrades were driven by all three divisions with i) lower than expected volumes in Beauty Care - off an already lowered base post the previous warning in June, ii) Crop care destocking - with a recovery now expected in H1 24 rather than Q4 23 and iii) continued weakness in Industrial Specialties. Volume headwinds weighing on operating leverage Compared to the last warning in June, this one had been somewhat more anticipated as investors had become increasingly cautious on drivers i) and ii) to begin with. Nevertheless, the magnitude of the guidance cut and margin headwind from operating leverage were larger than expected in an industry with typically low fixed cost leverage (we suspect the wind down of its own inventories could be playing a part here too). We cut our PBT estimates by 17% and 21% in FY23 and FY24 respectively and lower our target price to GBP5,500 from GBP6,200. Still a steep hill to climb towards FY24 consensus, we stay Neutral for now On the call management sounded optimistic on improving volumes in FY24 and in the meantime will pursue additional cost measures such as reduced shifts and plant shutdowns. With visibility as low as two weeks and after several false starts through 2023, we suspect investors will be wary of pricing in such a volume recovery until we see clearer signs that destocking is coming to an end. FY24 should certainly see easier comps across Consumer Care and Crop Care, however we expect any underlying progress in Healthcare to be masked by COVID declines. On our new estimates, shares are trading on 27x 2024 PE, 15x EV/EBITDA at a premium to Specialty Ingredients peers on 22x and 14x respectively. We stay Neutral.
Interim results quantified the extent of destocking challenges experienced in all three of Croda's sector's during H1 23, which is captured in a constant FX sales decline of -24.6% and constant FX fall in adj. EBIT of 42.6% during the first six months of the year. While H2 23 visibility remains low
No surprises post the warning in June Croda reported H1 PBT of GBP174m, -42% y/y and in line with latest consensus. After the big warning in June, there was limited incremental news. Pro forma volumes declined -18% y/y in H1 driven by destocking across Consumer Care and in Crop with margins -660bps y/y mainly on negative volume leverage. Small signs of green shoots? Visibility limited to two weeks After pronounced destocking since July 2022, Croda has seen some signs of sequential improvement with Consumer Care volumes up sequentially through H1 albeit -14% y/y. They attributed -10% of the volume decline to destocking/weaker demand and -4% to business disruption due to previous capacity constraints. Management sounded constructive on the stabilisation in volumes from here but emphasised order book visibility is extremely limited at this stage. FY23 guidance reiterated, implying limited underlying improvement in H2 Management reiterated guidance for FY23 PBT of GBP370-400m or -22% y/y at the midpoint. Taking into account GBP25m of EBIT due in H2 from the Pfizer lipids contract, the guidance implies an underlying improvement of 7% h/h at the midpoint but limited h/h progress at the bottom end of the range. We tweak FY23 estimates up by 2% to GBP382m of PBT in FY23 and stay Neutral. Shares are trading on 14.4x 2024 EV/EBITDA and broadly in line with the Ingredients average. If we could ask one question (more inside) Can you discuss the difference in trends between Beauty Actives and Beauty Care? As inputs decline, to what extent do you need ''give back'' some of the price to customers, particularly if the demand environment weakens?
A surprise warning despite recent cautious messaging We cut our FY23 PBT estimates by 17% following Friday''s profit warning which drove the stock down 12%. The warning was driven by a more prolonged destock in Consumer Care and rapid destocking in Crop Care from Q2, with both factors materially weighing on margins. Management had been at recent conferences (including our own CEO conference last week) with an already cautious message on Consumer Care destocking, however we think the headwinds on margins and Crop had been less well flagged. Revised guidance implies 0-20% h/h improvement on underlying business At a group level Croda now guides to FY23 PBT of GBP370-400m or -22% y/y at the midpoint. Taking into account GBP25m of EBIT due in H2 from the Pfizer lipids contract, this implies an underlying improvement of 11% h/h at the midpoint but limited h/h progress at the bottom end of the range. A year of double-digit volume declines in Consumer Care - destock, demand or demarketing? Croda had been one of the first to see destocking in Consumer Care since July 2022 and has now experienced almost 12 months of double-digit volume declines in the division. Revised guidance implies continued destock in H2 which calls into question whether there are more serious issues at play, relating to underlying demand or market share issues (particularly after the -5% lost volumes from capacity constraints or ''demarketing'' last year). We suspect it is a combination of all three. Mid term growth drivers intact but too early to step in. We remain Neutral That being said, we do believe the longer term growth drivers of sustainable Consumer Care and the healthcare pipeline remain intact. However we think the stock will lack support until we see clear signs that the destock is coming to an end which may take some time given the limited frequency of relevant datapoints from Croda itself and the wider beauty care industry. We stay Neutral with shares trading on...
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CRDA ELM JMAT OGN SYNT VCT ZTF
H2 22: Life Sciences ahead, Consumer Care miss Croda reported H2 PBT of GBP207m, 6% ahead of company consensus. FY22 group organic growth came in at 4.6%, slowing in H2 to -9% y/y mainly driven by destocking and demarketing in Consumer Care which also weighed on divisional margins. For FY23 management expects growth to be H2 weighted due to destocking in H1 and phasing of lipid sales for the COVID vaccine. Destocking likely to remain in focus in the near term Shorter term we expect investor focus to remain on destocking and demarketing trends which drove most of the -12% volume decline in Consumer Care in FY22. Croda had been one of the earliest to flag destocking since July last year, initially in Beauty Actives in N America. Croda has started to see initial signs of improvement in N American order books into March/April, also indirectly supported by easing of lockdowns in China. However, we suspect investors will want to see further tangible signs of improvement to get more comfort given the magnitude and duration of volume weakness. Continued confidence in the Pharma pipeline to 2026 and beyond In Life Sciences, strength in Healthcare ex COVID and Crop should offset the previously guided USD30m decline in COVID related revenues in FY23. Longer term management remains confident in the pipeline, supporting low double-digit growth in Pharma to 2025 and acceleration thereafter. Growth should be broad based without over indexing to any one customer/drug/application however given the complexity and opaqueness of the business, we think investors still need to see more evidence of progress to give management benefit of the doubt on the 2025+ growth acceleration. Limited changes to estimates, we stick to our Neutral rating We nudge up FY23 PBT by 1% post results. Shares are trading on 17x 2023 EV/EBITDA, at a small premium to the Ingredients average of 16.5x. Croda is no doubt a high quality company, with an upgraded portfolio vs history and a...
CRDA JMAT SYNT ELM VCT OGN
H1 beat with strong pricing and margins but more subdued volumes Croda reported H1 PBT of GBP289m, 11% ahead of consensus with all divisions ahead of expectations. Organic growth was 17% driven by 20% price, 2% mix whilst volumes declined 5% including some destocking but also de-marketing in Consumer Care (prioritising its capacity for higher value products). Management now sees FY22 earnings ''modestly ahead'' of previous expectations, pointing to c5% upside to consensus or PBT closer to GBP485m. Expecting consumer cool off, but not cliff edge Within the upgraded guidance, management assumes some slowdown in consumer demand in H2 although likely a ''cool down'' rather than a cliff edge. With the divestment of PTIC now complete and with the gradual portfolio upgrades in the core business over time, management is confident its portfolio of Consumer Care and Life Sciences is now more resilient than in the past. Lipids revenues to trough in 2023 and 2024 Croda provided guidance for lipid systems revenue through 2024, targeting USD150m in 2022 (lowered from USD200m), and troughing at USD120m in 2023 and 2024 with growth thereafter. Although a downgrade to 2022, we believe the drop in 2023/24 is not as bad as feared and should help draw a line on discussions on lipids downside risk which has overshadowed conversations on Life Sciences growth prospects. Based on its current pipeline, management expects non-COVID applications to account for 75% of lipids revenue by 2024. We would expect more colour on lipids and its wider pharma pipeline of 330 programmes at the Healthcare investor event on 5th October. We upgrade FY22 estimates by 5%, mainly in Consumer Care We have a Neutral rating; we do expect a more challenging operating environment in H2 plus headwinds from a smaller lipids contribution h/h and y/y, but we would agree with management that the portfolio (and balance sheet) is somewhat more resilient today than in the past. We nudge down our...
CRDA OGN SYNT ELM VCT JMAT
CRDA ELM OGN SYNT VCT ZTF
In line H2 with broad based growth and contribution from COVID vaccine Croda reported an in line H2 with solid underlying performance and contribution from lipid systems for the COVID vaccine as guided (USD200m of revenue). 2021 volumes came in at 9% and price/mix of 17%, including roughly 6% price impact to offset raw material inflation. For 2022 management guides to robust consumer demand, inflation recovery and benefit of recent investments, plus a similar y/y contribution from lipid systems. Growing pipeline in healthcare should underpin mid-term growth There has been plenty of investor attention on Croda''s healthcare business recently - or more specifically on its lipid systems business which accounted for 25% of Life Science revenues in 2021 following 37% growth driven by the COVID vaccine. Management reiterated existing guidance for a flat revenue contribution from lipid systems y/y at USD200m in 2022, still mainly attributable to its multi-year contract with Pfizer for the vaccine. Although it remains too early to provide quantitative guidance for 2023, management sounded confident in the mid term outlook for lipid systems and the wider healthcare portfolio. The group has 250 new clinical and pre-clinical programmes currently underway, which should ultimately create a more diversified revenue stream. Whilst lipid systems will likely be lumpy over the next few years, progress across the wider pipeline should underpin the mid term growth target of 7-10% with operating profit margins in the mid 30s. Small tweaks to estimates, maintain Neutral We make small changes to estimates; our 2022 operating profit estimate of GBP465m assumes a divestment of the PTIC business by the end of H1. Shares have pulled back -26% YTD, underperforming the wider ingredients space by ~10% largely due to positioning following strong outperformance in 2020/21. Shares are trading on 30x 2022 PE, 19x EV/EBITDA, at a 5% discount to ingredients peers. We...
CRDA SYNT ELM VCT OGN
The conclusion of the PTIC strategic review will provide the next catalyst for portfolio simplification & capacity for capital redeployment to enhance Croda’s organic growth opportunity. We explore the financial implications of a potential disposal in this note and see the reinvestment of proce
Croda, Melexis, Virgin Money, Marston's, Vertu Motors, SMID Market Highlights
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Croda, Melexis, Virgin Money, Marston's, Vertu Motors, Market Highlights
CRDA MELE VMUK MARS VTU SAN AZN GSK AI AAL STMPA CPG NOKIA SGRO PETS DDDD AIXA JMAT BOY MAB MCG MGAM LOOK 0NWF 0FA0 0O59 0INB
This report provides an overview of the competitive landscape for the supply of lipids for one of the most exciting areas of modern medicine: mRNA technology. The report also touches on the impressive half-year results, which highlighted the strength of the Patient Health business we have long identified as the division with the most promise. We upgrade our earnings forecasts by 19% for FY21, as well as our outer year forecasts in Life Sciences, which leads to an upgrade of our target price to £92 (from £74) and is based on ROIC/WACC & DCF blend. Croda remains one of our top picks in the sector.
H1 beat with growth across all segments vs 2019 levels Croda reported a strong H1 with a beat in all divisions, led by Life Sciences including a higher contribution from the COVID vaccine as well as strength in the underlying business. Management confirmed the beat can be extrapolated into H2 as they expect the usual H1/H2 weighting of c52%/48%, pointing to FY21 PBT of around GBP430m+, c13% ahead of consensus. They also confirmed a similar y/y contribution from lipid systems into FY22 (primarily for the COVID vaccine), also ahead of consensus expectations which had assumed a y/y moderation. Favourable backdrop into H2 and beyond We upgrade our FY21 PBT estimate by 13% to GBP446m and FY22 by 6%. We increase our price target to GBP8200 on the back of the earnings upgrades. We see a favourable backdrop for Croda into H2 and beyond as it benefits from the ''out of home'' consumer recovery and broader industrial recovery whilst Life Sciences remains strong. However, shares have re-rated through 2020/21. On our new FY22 estimates, Croda trades on 21x FY22 EV/EBITDA and 2.6% FCF yield which is in line with the Consumer Ingredients avg which seems fair to us; we maintain our Neutral rating. Life Sciences mid term topline outlook upgraded to 7-10% Back at FY results, management had called 2021 as a ''potentially transformational year'' for Life Sciences thanks to the partnership with Pfizer/BioNTech for the COVID-19 vaccine as well as pipeline opportunities in its legacy business and other lipid systems applications beyond the COVID vaccine. This transformation seems to be playing out with the division delivering 47% organic growth y/y including 17% in the underlying business ex lipid systems. Management upgraded its mid-term topline outlook to 7-10% vs 5-7% previously, driven by its confidence in Healthcare in particular. If we could ask one question (more inside) What do you intend to do with potential proceeds from the PTIC strategic review?...
CRDA ELM SYNT VCT OGN
Positive BioNtech presentation
This report focuses on the two major acquisitions that Croda completed in 2020, Avanti and Iberchem, for a total consideration of just under £900m. Avanti gives Croda a leading position in protective lipids for messenger RNA (mRNA) vaccines and therapeutics, one of the most exciting areas of modern medicine. Fragrance ingredient supplier Iberchem already has a strong position with fast-growing local/regional brands but should benefit from Croda’s greater geographic reach and sustainable raw materials. Both were good-value acquisitions, and quality and growth accretive.
Limited changes to estimates - margin resilience despite COVID-19 Croda printed a solid H1 with resilient margin performance (flat H/H) despite topline and headwinds due to COVID-19 in its core Personal Care business. We make marginal changes to estimates following an in line H1 print. Within the divisions we tweak up estimates in Life Sciences in both 2020 and outer years and tweak down 2020 estimates in Personal Care. We lift our target price to GBp5,860 vs GBp5,700 previously on the upgrades in Life Sciences. We stick to our Outperform rating: shares trade on 18x 2021 EV/EBITDA and 3% FCF, still at a discount to consumer chemicals on over 20x EV/EBITDA. Life Sciences in the limelight - underlying growth plus bolt-on acquisitions Management refrained from providing group guidance given the current low levels of visibility but conveyed a confident message in Life Sciences in particular where they expect benefits in H2 from new Healthcare pipeline sales, phasing in Crop and contribution from the Avanti acquisition, which is expected to close in Q3 and adds new competencies in drug deliveries. We continue to like the growth and margin profile of this division and expect management to pursue further bolt-ons in this fragmented subspace. In its flagship Personal Care business, management remain upbeat on the ability for consumer demand to rebound as lockdown measures ease - as observed in China in Q2. In developed markets, we have started to see initial signs of improvement in industry Nielsen/IRI data, which tends to lead Croda''s activity by 2-3 months. If we could ask one question (more inside) One of Croda''s core strengths is its close relationships with customers - both large multinationals and smaller ''indie'' customers. How has COVID-19 impacted your ability to interact and innovate with customers?
We are trimming our 2019 estimates further this morning following a management roundtable yesterday where FY guidance was clarified. Our new PBT estimate for the year is £330m, 6% lower than we posted in February post FY results and a flat outcome on a year earlier.
Today's 1H results missed consensus expectations slightly and were noteworthy for a sharp reversal in fortunes at the flagship Personal Care Division and soft sales at more cyclically and operationally geared Performance Technologies. Our new PBT estimate for the year is £337m, 4% lower than we posted in February post FY results. Our 3 factor valuation (DCF, ROCE vs EV/IC and 3x PEG) is trimmed to €45.
Croda enjoyed solid mid-single digit profit growth in 2018 and looks set to enjoy something similar in 2019. Net debt/EBITDA has been running at the bottom of the 1-1.5x target range for three years so the 115p (£150m) special dividend was not a surprise, though welcome.
On Monday, Amarin Corp (AMRN US) announced positive results from its outcomes study for its Omega3 drug with patients with high LDL cholesterol on statins and the share price has quadrupled - click here .The news is significant for Croda because it raises the possibility of a major Omega3 API opportunity longer term if the US approval window widens to mild/moderate blood triglycerides or prescription rates for the current approved indication increase. Croda generated cumulative £55m of revenues (2014-2017) before winding down its UK API operations - equating to 1% of Group revenues and 2% of estimated profit. It has not supplied Amarin historically. However it is is one of only a few players with FDA plant approval and a pharma capability. We believe the market opportunity could be 5-10x larger than before though it is early days. Unfortunately the shares are a little overvalued on DCF, ROCE.
This note takes a closer look at three key 2018 earnings drivers: FX, bio-surfactants and Omega3. Together these three will amount to an EBIT headwind of around c. £16m in 2018 or 2% of PBT making consensus forecasts of 6% PBT growth a fair ask. We think the 5% 2018-2020 FCF yield is interesting as capex normalises but that the earnings multiples are about right for predicted growth. Absent M&A or earnings upgrades the shares remain a Hold.
Following yesterday's FY17 results we are making modest changes to our headline estimates and our TP rises slightly from £43 to £45 as we roll forward our DCF and ROCE valuation models by a year. This note takes a closer look at three key 2018 earnings drivers: FX, bio-surfactants and Omega3. Together these three will amount to an EBIT headwind of around £16m in 2018 or 2% of PBT making consensus forecasts of 6% PBT growth a fair ask. We think the 5% 2018-2020 FCF yield is interesting as capex normalises but that the earnings multiples are about right for predicted growth. Absent M&A or earnings upgrades the shares remain a Hold.
Croda’s Q1 update reaffirms full year profit expectations as continued margin enhancement and mix offsets somewhat sluggish underlying sales trends. Reported sales increased by 7.7% (+9.8% in the three core sectors) and by 0.4% on an underlying basis. Profit growth in Q1 was achieved through a good performance in consumer markets and innovation driving margins (New and Protected Products +8.0%). Operating margins increased by 60 basis points. Despite pockets of good growth (Asia, Europe, NPP), underlying sales trends have been held back by North America, where export customers have been impacted by the stronger dollar, and Latin America, given challenges in that region. Despite this, we continue to expect a year of good progress and remain at BUY. NB shares remain cum-div the 100p special.
Croda is a company of the highest quality and in our view fully merits its premium rating. 2015 was a return to form with good growth in sales and PBT (constant currency PBT +8.8%) after two somewhat disappointing years. This was driven by an excellent contribution from Omega 3 and New and Protected Products more generally. NPP sales now account for 26% of Group, underpinning ongoing margin development. The 100p special dividend was the icing on the cake and the shares are still cum-div.
Croda has confirmed a good year of progress in 2015, a fraction ahead of our expectations. All key metrics show growth (CC sales +4.2%, PBT +8.8%), an impressive results in a challenging and unpredictable market environment. The main news in the statement is confirmation of a 100p special dividend (3.6% yield in isolation), reflecting the strength of the balance sheet and cash generative nature of the Group. Growth continues to be driven by innovation (New and Patent Protected Product sales growing at 4x underlying sales) and investment (£200m invested in organic and inorganic growth opportunities). Croda is a company of the highest quality and in our view fully deserving of its sector leading rating.
A solid Q3 update confirms modest sales growth in Q3 (+2.3%), driven by another strong performance from the Consumer sectors and from Life Sciences in particular (+7.3%) on the back of the pharma grade Omega 3 API launch in the US. Q3 margins were ahead of the prior year with growth of New and Protected Products (NPP) well ahead of overall sales. Full year expectations are reiterated on a constant currency basis, implying a modest currency related downgrade to forecasts.
Croda's interims strike a confident tone confirming a continued improvement in underlying sales, strong margins and 7% PBT growth. This was underpinned by record sales of New and Protected products. Life Sciences is again the stand out performer, reporting 15% revenue growth on the back of the Omega 3 product launch. Encouragingly, Q2 sales were ahead of Q1. Full year expectations are reiterated, despite tougher comps from H2. We expect to retain our forecasts. Croda is a Group of the highest quality. Our Hold recommendation reflects a full valuation (c.14x EV/EBITDA), which is in takeover territory.
