Croda: Poised for Rebound After Signs of Improvement in 2024

Company Update (CRDA LN) (Buy): Shares are near a 5-year low, earnings should trough in 2024, and P/E is ~26x relative to these.

Highlights

• 2024 PBT will likely be ~20% less than in 2019 due to cyclical headwinds.

• P&L saw outsized impact from weak sales, due to low capacity utilization.

• Both sales & margin have progressively improved during Q1-3 2024.

• Croda is a possible target; its chair just sold another company she chairs.

• At 3,379p, we see a 55% total return (15.5% IRR) by 2027 end. Buy.

Introduction

We revisit Croda after shares closed below 3,400p for the first time in 2024; they have fallen 34% in the past year and are near their lowest level in 5 years:

Croda Share Price (Last 5 Years)

Source: Google Finance (27-Dec-24).

We re-initiated our coverage of Croda with a Buy rating in June 2023, and shares have lost 36.0% since then (after dividends). Croda has never been part of our “Select 15” model portfolio (created in 2023), though in real life we made small profits from holding it for brief periods (during June 2023 after our re-initiation, and again after an updated review in September 2023 until March 2024). We last published research on Croda in February, following 2023 results.

We have reinitiated a position on Croda on Friday (December 27). We continue to see Croda as a quality business temporarily affected by cyclical headwinds. 2024 earnings guidance imply a reasonable ~26x P/E, the business has shown momentum and should rebound from 2025 onwards. Our base case forecasts show a mid-teens annualized return, and further upside is possible if a strategic buyer emerges.

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