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Croda: Cheapest Since 2020 as Sales Hit Post-COVID Cyclical Lows

Croda: Cheapest Since 2020 as Sales Hit Post-COVID Cyclical Lows

Re-initation of Coverage (CRDA LN) (Buy)

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Librarian Capital
Jun 15, 2023
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Librarian Capital's Research Library
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Croda: Cheapest Since 2020 as Sales Hit Post-COVID Cyclical Lows
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Highlights

  • Shares are 47% down from peak after a profit warning last week

  • Weak 2023 due to post-COVID factors like customer destocking

  • P/E is at 28x on trough EPS that assumes little growth from 2020

  • Future growth is to be driven by new businesses

  • At 5,526p, we see 47% upside (16.7% p.a.) by end of 2025. Buy

Introduction

We reinitiate our coverage of Croda, a U.K. mid-cap specialty chemicals company, after shares hit a multi-year low following a profit warning last Friday (June 9). Shares fell 12.5% that day but have rebounded 4.3% since.

Croda shares are attractive because both earnings and valuation multiples are cyclically low. The share price is at its lowest since July 2020. 2023 sales are expected to be hit by post-COVID customer de-stocking and a further decline in vaccine-related sales. The P/E is less than 28x on trough 2023 earnings, and the low end of the outlook implies only a slight growth from pro forma 2020. Management targets imply mid-to-high-single-digits EPS growth over tim…

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