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No slowdown at Croda

The recovery shows no signs of slackening at speciality chemical company Croda. It posted second-quarter profits 32 per cent higher than consensus expectations, prompting a buying rush that pushed the share price up 7 per cent.

Growth was particularly robust in the industrial businesses Croda bought from ICI in the vast Uniqema acquisition of 2006. Having been decimated by de-stocking last year, operating profits jumped from £0.9m to £29.6m in the first half. The group's other division, which processes chemicals for health and beauty groups such as L'Oréal, proved far more resilient during the recession but still saw profits jump 35 per cent to £71.2m, thanks to cost-cutting and a record operating margin of 27 per cent - way above target.

In May, Croda announced the sale of its German fatty acid plant Emmerich - another low-margin ex-ICI business - to the Malaysian multinational KLK. That largely completes the restructuring programme it started with the Uniqema deal, although there's still room for margin improvement in the industrial division. Chief executive Mike Humphrey says the company will hit its 15 per cent margin target in this business "in the medium term".

Deutsche Bank expects full-year pre-tax profits of £151m and EPS of 75.3p (£89m and 53.1p in 2009).

CRODA (CRDA)

ORD PRICE:1,245pMARKET VALUE:£1.7bn
TOUCH:1,245-1248p12-MONTH HIGH:1,249pLOW: 536p
DIVIDEND YIELD:2.0%PE RATIO:18
NET ASSET VALUE:132p*NET DEBT:148%

Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Net div per share (p)
200940546.322.36.50
201051696.247.29.75
% change+28+108+112+50

Ex-div:01 Sep

Payment:7 Oct

*Includes intangible assets of £203m, or 148p a share

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More analysis of company results

IC View

Four years after the transformative Uniqema acquisition, Croda is looking increasingly well-balanced, and the debt it took on is now more affordable, with net borrowings at 1.3 times cash profits. Rated on 15 times expected earnings, the shares offer medium-term upside. Good value.

Last IC View: Good value, 894p, 23 February 2010.

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