Croda trading weakly despite dividend, sales growth

Vaccines and consumer spending drove Croda International’s (CRDA) sales and profits higher in 2021, allowing management at the Yorkshire-based company to up its dividend by 10 per cent. 

Chief executive Steve Foots was keen to highlight growth opportunities outside the pandemic, given the declining opportunities in that space thanks to high vaccination rates in much of the developed world, and point to a “rapidly building pipeline” of non-Covid-19 sales applications. Croda operates in the middle of the pharmaceutical supply chain through its life sciences division, and also sells key ingredients for beauty products and bathroom and laundry staples through its consumer care division. 

The company said in 2021 it had more than 150 Covid-19 related projects, with 90 added during the year, while also signing on to 160 non-Covid-19 programmes, which included mRNA vaccine development for the influenza, HIV and Ebola viruses. 

The market has stuck the boot in to Foots & Co. since the start of 2022, even as the company promised “inflation cost recovery”, continued sales growth, and the maintenance of profit margins this year. Croda’s share price has dropped a quarter since the start of 2022, after climbing 53 per cent to over 10,000p over the course of 2021.  

The final dividend of 56.5p a share was 3 per cent ahead of investment bank Jefferies’ forecast as well. 

Croda will likely be a different company after the summer. This is due to the agreed sale of its performance technologies and industrial chemicals businesses (known as PTIC collectively) to agricultural trading giant Cargill for £778mn. These two units contributed just under a third of sales in 2021. Foots was bullish on post-sale Croda: “[The deal] will release more capital to reinvest in faster growth, higher return markets, positioning us to deliver more consistent sales growth and an even stronger profit margin”. 

Those expectations are clearly based on 2021’s strong figures. Consumer care and life sciences both had sales growth of around 45 per cent, while performance technologies saw growth of around 18 per cent. This difference narrows when looking at underlying sales growth compared with 2019. 

Croda has been a very solid player in the pharmaceutical and beauty industries for years, with a stable dividend and earnings maintained by frequent acquisitions and canny management of profit margins. Slimming down the business is smart and consensus estimates see adjusted earnings per share climbing 5 per cent to 261p this year, but we’ll keep this on a hold until some of the fog clears around the post-Covid-19 trade and the Cargill deal is done. Hold. 

Last IC View: Hold, 9,942p, 22 Dec 2021