Exane cuts Croda International to underperform

Exane BNP Paribas has cut Croda International from ‘neutral’ to ‘underperform’, citing tougher competition, slower growth and lower margins.

The investment bank said on Wednesday that the competitive environment the chemicals company operates in has structurally changed.

“Croda attributes its growth ‘soft patch’ in FY13-14 to slower end-markets, and less ingredient innovation by HPC customers,” it noted.

“Yet our benchmarking analysis suggests peers weathered these headwinds better. These competitors continue to invest heavily for further growth.”

It also said that there’s increasing evidence that the threat against Croda’s innovation leadership is increasing.

Exane BNP Paribas highlighted a number of risks in the Crop Care business specifically, including a customer base that’s consolidating, as well as high inventories in the northern hemisphere after a weak 2015.

It said the company is no longer a cash generation machine.

“Working capital intensity (mainly inventories) has been increasing since FY11. Capex at 2-2.5x depreciation for the next two years implies a significant near-term headwind.”

Croda International’s target price was also cut from 2,880p to 2,500p.

Shares in the company dropped 55p (1.91%) to 2,818.00 at 0955 GMT.