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Croda bids to reinvent amid market weakness

The chemicals group experienced a jump in its free cash flow
February 25, 2020

Croda International (CDRA) experienced a mixed 2019 across its business segments, with gains in its life sciences work more than offset by the impact of the global industrial slowdown.

IC TIP: Hold at 4,854p

The chemicals group’s life sciences segment posted a record sales performance, with an 8 per cent turnover boost to £351m driven by progress in its healthcare and crop protection businesses. Life sciences will benefit from increased capacity that includes the recommissioning of its US biosurfactant plant, which suffered a leak in 2018. The US-China trade war and changes to Chinese legislation over distribution hampered Croda’s personal care business, which did however manage a return to growth in the fourth quarter. 

Along with factors including lower sales and a higher interest charge, Croda’s profits were cut by a £10.9m exceptional charge linked to cost-saving measures. Croda chief executive Steve Foots described this initiative as an attempt at “re-purposing our resource”, reducing costs in its more mature markets in Europe and North America and reinvesting these across growth areas such as North Asia, life sciences and personal care. Croda’s free cash flow leapt 30.2 per cent, meanwhile, to £201.7m, owing to improved working capital management. “Our sites are not hungry for further capital,” Mr Foots said, who would rather invest in research and marketing. Croda’s net capital expenditure of £107m sits at 7.8 per cent of overall turnover.

Consensus estimates compiled by Bloomberg give full-year 2020 adjusted EPS of 194p, rising to 208p in 2021.

CRODA INTERNATIONAL (CRDA)  
ORD PRICE:4,854pMARKET VALUE:£6.26bn
TOUCH:4,850-4,860p12-MONTH HIGH:5,415pLOW: 4,510p
DIVIDEND YIELD:1.9%PE RATIO:28
NET ASSET VALUE:668p*NET DEBT:63%**
Year to 31 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20151.0825213369
20161.2427614874
20171.3731418181
20181.3931818187
20191.3830217390
% change-1-5-5+3
Ex-div:16 Apr   
Payment:28 May   
*Includes intangible assets of £445m, or 345p a share **Includes IFRS 16 lease liabilities of £43.5m