Croda drops on Credit Suisse downgrade

Credit Suisse downgraded Croda International to 'underperform' from 'neutral' but left the price target at 3,300p.

The bank said Croda shares are trading at a premium to fair value given operational headwinds in 2017 and structural longer-term pressure in Personal Care as the business lifecycle matures.

CS forecasts near-term earnings headwinds from upfront investment costs for the Atlas Point ethylene oxide facility, further price pressure in Omega-3 and continued portfolio downsizing.

Atlas Point is Croda's new ethylene oxide facility being built in the US, which will use corn-ethanol to produce ethylene oxide, giving organic credentials to its formulations.

CS noted the facility will incur circa £3m of ramp-up costs in the second half of this year as production is brought online.

Credit Suisse expects 2% volume, 1% price and 50 basis points margin pressure in 2017.

"We believe Croda's competitive position in Personal Care is under pressure from new entrants at both the value end (specialty chemicals) and in the company's premium portfolio," it said.

CS said it forecasts flat volumes to 2020 as Croda trims its tail-end business, where greater competition is eroding the margin premium.

At 0946 BST, the shares were down 3.2% to 3,502p.