Croda: Still a Cyclical Recovery Play, Lower for Longer After 2023 Results
Compoany Update (CRDA LN) Buy: New outlook pushes the expected P&L rebound beyond 2024, but the potential is clear and P/E is just 30-35x on likely trough earnings.
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Highlights
Croda is a stock on a cyclical downturn, trading at less than ½ its peak
Outside de-stocking, most verticals have grown sales at 5-16% CAGRs
We see FY24 as the trough; outlook implies growth on normalized basis
P/E is 30-35x on implied FY24 EPS; Dividend Yield is 2.3%
At 4,675.75p, we see a 38% total return (11.8% annualized). Buy
Introduction
Croda released full-year 2023 results on Tuesday (February 27). Shares have fallen 4.6% in the two days after.
We re-initiated our coverage of Croda with a Buy rating in June 2023 after a profit warning, viewing Croda as an unique asset where both earnings and valuation were temporarily depressed by cyclical factors. Current share price is less than half of the 10,505p peak in December 2021 (at what turned out to be 42x 2021 EPS, which was helped by lipid sales for the Pfizer/BioNTech COVID-19 vaccine), and about 9% lower than at 2019 year-end:
Croda Share Price (Last 5 Years)
Source: Google Finance (28-Feb-24).
2023 results were in the middle of its October 2023 guidance, but its 2024 outlook indicates a further decline in profits. Nonetheless, we believe shares are attractive, with an acceptable valuation even on cyclically depressed earnings and a high likelihood of those earnings recovering after 2024.