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Croda earnings aloft on superior product mix

The speciality chemicals producer benefited from a more profitable product mix in the first half
July 27, 2016

An enhanced product mix helped Croda International (CRDA) deliver strong bottom-line performance despite "subdued demand" in the first half. Reported revenues benefited from favourable currency translations equivalent to £32.2m as sterling weakened, although they were down slightly on an underlying basis after the speciality chemicals producer actively cut sales of lower-margin co-products. This focus on the more profitable parts of the business pushed up the group operating margin and delivered a double-digit increase in adjusted earnings.

IC TIP: Hold at 3288p

Nearly all of Croda's sales are generated outside the UK, along with 80 per cent of group production, so sterling’s weakness should continue to bolster reported figures. Nonetheless, management remains circumspect with regard to the possible knock-on effect of the Brexit vote. For now, however, sales in Europe remain a bright spot, while the group's expansion into Asian markets continues briskly, particularly encouraging given the rise of the Korean cosmetics industry - a key end market.

Meanwhile, softening conditions in the Americas was offset by segmental growth in niche areas such as skincare and agriculture, the latter of which was augmented by last year's deal to acquire Incotec, a Netherlands-based seed treatment business.

Prior to these figures, JPMorgan Cazenove was expecting adjusted profits of £273m for the December year-end and EPS of 146p, against £252m and 135p in 2015.

CRODA INTERNATIONAL (CRDA)
ORD PRICE:3,288pMARKET VALUE:£4.31bn
TOUCH:3,287-3,288p12-MONTH HIGH:3,379pLOW: 2,637p
DIVIDEND YIELD:2.2%PE RATIO:24
NET ASSET VALUE:401p*NET DEBT:79%

Half-year to 30 JuneTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201556513671.731.0
201660914577.032.8
% change+8+7+7+6

Ex-div: 8 Sep

Payment: 4 Oct

*Includes intangible assets of £353m, or 269p a share