Croda dividend appears safe, Liberum says

Croda appears on track to pay its 2019 dividend despite the Covid-19 crisis, Liberum said as the broker raised its recommendation on the company's shares to 'buy' and increased its target price.

Of UK chemical companies, Croda is the most resilient in 2020 with limited exposure to cyclical sectors and ample liquidity, Liberum analysts said.

Less than 10% of revenue comes from auto and energy markets whereas about 60% is from the more reliable health, agriculture and personal care industries, Liberum said. Looking back to the financial crisis, the worst period for Croda was a 14% earnings decline in the first half of 2009 that was soon recouped, the analysts said.

Net debt was 1.4 times earnings at the end of 2019, comfortably above the 3.5 times covenant, meaning liquidity is no problem, analysts Adam Collins and William Larwood said. With many companies cancelling dividends, Croda appears in good shape to make its payout, they said.

"We don't know if the board will propose scrapping the 2019 proposed dividend at this week's [annual general meeting] but do not see any need to do so from a liquidity perspective," the analysts wrote in a note to clients.

The analysts said they expected pretax profit to fall 8% in 2020 with auto and energy sales falling at the technologies division. But life sciences will hold up very well and personal care quite well, they predicted.

Collins and Larwood raised their price target on Croda shares to €51 from €47 and upped their recommendation to 'buy' from 'hold'.

"We think that earnings resilience, strong cashflow and low financial leverage are going to continue to be highly valued by investors," the analysts said. "We think Croda will be the most resilient of the UK chemcos."