Croda shares slump on UBS downgrade

Croda International was under the cosh on Tuesday as UBS downgraded its stance on the shares to 'neutral' from 'buy', as it argued that the stock's multiple was now fair and 2019 growth is likely to be weighted to the second half.

The bank noted that the shares are now close to its target price, which it upped to 5,500p from 5,300p.

"The 2019E price-to-earnings of 26x and free cash flow yield of 3% look fair valuation metrics in the context of Croda's portfolio (75% of group EBIT comprising consumer and life science actives and 25% industrial-facing products) and peer valuations," it said.

In addition, UBS highlighted potential headwinds for the first half of 2019 - for which results are due on 24 July - and said that it now relies less comfortably on second-half growth than previously.

UBS noted evidence of a material slowdown in the US cosmetics market. It also said there are two other issues to consider for the short-term earnings per share growth trajectory.

"1) Croda's crop care business could see some adverse fall-out from US weather disruption; 2) the US bio-surfactants plant has not restarted and, whilst idle, losses are accruing to the tune of £2m per quarter (3% to EPS on an annualised basis)."

At 1230 BST, the shares were down 5.1% at 4,832p.