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Slimmer Croda beats first-half forecasts

Post-Covid-19 prospects still in question but sales and earnings climbed strongly in the first half even as pandemic drug sales slowed
July 29, 2022
  • Punchy sales for first half even as Covid-19 boost fades away
  • Full-year outlook upgraded and PTIC sale completed

Croda International (CRDA), the chemicals group that sells into a range of industries from pharmaceuticals to agriculture, has beaten forecasts for the first half and said its full-year profit would likely be ahead of expectations as a result. 

In the first half, the company reported adjusted profit before tax of £289mn. This strips out the £361mn gain on the sale of its Performance Technologies and Industrial Chemicals (PTIC) business, which was completed on 30 June. 

The focus for the company in the period was working out how to maintain sales at a time when fewer people need to be vaccinated. Croda has forecast lipid sales, which are used in vaccines, to fall from £189mn last year to £123mn this year, 24 per cent below the previous forecasts.

Life sciences, the division in which the Covid-19 vaccine delivery offerings fall, saw gains again but this time thanks to crop protection sales. The division’s £330mn in sales put it 14 per cent ahead of last year. 

Overall, the company was able to maintain margins through raising prices. Even with raw material costs climbing 25 per cent, operating profit was up a quarter, ahead of the sales gain of 21 per cent. 

Consensus forecasts see the operating profit for 2022 coming in at £487mn, ahead of last year’s £469mn, although Jefferies analyst Charlie Bentley said the company’s growth would “moderate on consumer end markets” in the second half. 

The question for investors is whether Croda will be able to perform strongly with the combined impact of lower Covid-19-related sales and the slowdown hitting its sales to the beauty and other consumer sectors. Its balance sheet is in good shape to withstand a weaker sales period, with net debt significantly lower than last year, but its growth prospects remain unclear. It is trading around 29 times 2022 consensus earnings per share, which for us is not a low enough entry point. Hold. 

Last IC View: Hold, 7,330p, 1 March 2022

CRODA INTERNATIONAL (CRDA)  
ORD PRICE:7,306pMARKET VALUE:£ 10.3bn
TOUCH:7,304-7,310p12-MONTH HIGH:10,505pLOW: 5,862p
DIVIDEND YIELD:1.4%PE RATIO:14
NET ASSET VALUE:1,675p*NET DEBT:14%
Half-year to 30 JunTurnover (£bn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
20210.9320411043.5
20221.1263739047.0
% change+21+212+254+8
Ex-div:08 Sep   
Payment:04 Oct   
*Includes £1.27bn of intangible assets, or 904p a share.