JPMorgan downgrades Croda on valuation

JPMorgan Cazenove downgraded its stance on shares of specialty chemicals company Croda International on Wednesday to ‘underweight’ from ‘neutral’, pointing to an expensive valuation and already full 2021 consensus.

The bank said there is 15% downside potential even on its upgraded optimistic December 2021 end price target of 5,700p, which has been lifted from 4,250p.

It noted the shares jumped 7% on Tuesday after Croda said it had agreed with US-based Pfizer to supply excipients used in the manufacture of its Covid-19 vaccine candidate.

"These excipients come from Croda's recent acquisition of Avanti Polar Lipids. We estimate the deal to be value neutral as it will likely result in an earn-out payment (up to $75m) to the previous owners of Avanti which should broadly offset the three years’ earnings contribution from this vaccine," JPM said.

"Thus, the stock reaction yesterday seems excessive to us. Even including the contribution from the Pfizer Covid-19 vaccine (around 8% earnings per share uplift in 2021E), our 2021E EPS is in line with 2021 Bloomberg consensus as the consensus was already stretched, in our opinion."

JPM said that fundamentally, it likes the company but not the valuation.