Interactive Investor

ii view: £10bn Croda’s record results

1st March 2022 15:19

Keith Bowman from interactive investor

A new business focus and customers including vaccine maker Pfizer. Buy, sell or hold? 

Full-year results to 31 December 2021

  • Revenue up 36% to £1.89 billion
  • Operating profit up 51% to £438.2 million
  • Total dividend for the year up 9.9% to 100p per share

Guidance:

  • Expects profit margins in Consumer Care and Life Sciences to remain strong

Chief executive Steve Foots said:

"2021 has been an outstanding year for Croda. All parts of the business have delivered underlying growth, ahead of 2019 pre-pandemic levels, with strong cost recovery in a high inflation environment.”

ii round-up:

Speciality chemicals maker Croda (LSE:CRDA) today reported record financial results driven by both strong growth at its life sciences healthcare business and a recovery in demand for cosmetics substances made by its consumer care business.

Sales at the £10 billion FTSE 100 company rose by just over a third to £1.89 billion, with adjusted operating profit up 43.2% at constant currency to £468.6 million. The total dividend for year is up 9.9% to 100p per share. 

Croda shares fell by more than 2% in UK trading having climbed by over 70% since market lows in March 2020. Shares for smaller rivals Synthomer (LSE:SYNT) and Elementis (LSE:ELM) are up by 47% and 168% respectively over that time.  

Croda currently operates across four divisions: life sciences, consumer care, performance technologies and industrial chemicals. In December, and following a strategic review, it agreed the sale of the majority of its performance technologies and industrial chemicals businesses to Cargill for £778 million. The deal is due to complete in the summer. 

This leaves Croda focused on its life science and consumer care businesses, whose markets have reduced cyclicality, are faster growing, deliver high profits margins and are capital and carbon light.

Sales for its Consumer Care business rose 45% including acquisitions to £763 million. Products made include chemicals used in personal care and beauty items, fragrances and home care products. Pandemic lockdowns had previously reduced the use of items such as deodorants and perfumes as populations worked from home and forgo social gatherings. Operating profit rose 29% year-over-year to £188.5 million. 

Sales for Life Sciences including acquisitions climbed 46% to £572 million. Its products include chemicals used by Pfizer (NYSE:PFE) in relation to its Covid vaccine. Other chemicals made also include those used in crop protection products. Operating profit rose to £201 million for the year from 2020’2 £124.5 million.

In January, broker UBS estimates that the sale to Cargill with see over 90% of profits going forward coming from defensive end markets. 

ii view:

Started in 1925, Croda is today a speciality chemicals company employing over 5,000 people. A constituent of the FTSE 100 index, all geographic regions delivered sales and profit growth in this latest year, with the recovery strongest in North America. 

For investors, a combination of economic, pandemic and geopolitical uncertainty is being faced. Broader concerns regarding the impact of many chemicals on the environment also warrant consideration, while the company is losing some diversity of product sales following its recently agreed business sale. 

On the upside, a more focused business is emerging. Bolt-on acquisitions for both life sciences and consumer care were made over 2020, with sales growth for each both reported in this latest financial year. Accompanying management outlook comments proved encouraging, while a record of more than 20 years of consecutive dividend increases is not to be ignored. In all, and with the consensus analyst estimate of fair value stood at over £88 per share, room for long term optimism remains. 

Positives: 

  • A diverse product and customer base
  • A progressive dividend policy 

Negatives:

  • Environmental concerns
  • A historic dividend yield below UK chemical company rivals

The average rating of stock market analysts:

Strong hold

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