Credit Suisse downgrades Croda on valuation

Credit Suisse downgraded Croda International to ‘neutral’ from ‘outperform’ on valuation grounds, keeping the price target at 3,500p.

“We believe Croda now represents fair value trading on an average of specialty chemicals and staples customers multiples,” the bank said.

“Croda has re-rated from around 9x to 15x EV/EBITDA over the last two years as management have restored earnings growth – we believe this now represents fair value with a neutral risk reward bias.”

It expects near-term earnings headwinds in 2017/18 from upfront investment costs, product trimming and price pressure in Omega-3.

For Industrial Chemicals, CS cut its forecast earnings before interest and taxes from £6m to breakeven in 2016, given the ongoing weakness in by-product markets and continued organic sales declines in the third quarter.

In Performance Technologies, it factors in £3m headwind from ramp costs at the new Atlas Point facility plus an additional £1m of depreciation expense as the plant comes online in the fourth quarter of next year.

For Consumer Care, Credit Suisse factors in £1m headwind from ramp costs at the new Atlas Point facility and an additional £0.5m of depreciation expense as the plant comes online.

In addition, CS reckons Croda's competitive position in Personal Care is under pressure from new entrants at both the value end and in their premium portfolio.

At 0827 GMT, Croda shares were down 1.6% to 3,314p.