SocGen starts Croda at 'buy'; says growth is back but valuation isn't full yet

Societe Generale initiated coverage of Croda with a ‘buy’ rating and 3,050p price target.

It said Croda has suffered from stagnating consumer spending in mature markets over 2012-2014, resulting in virtually no sales growth. However, since the third quarter of 2014, consumer sentiment/innovation rates have started to pick up again, resulting in an underlying sales growth run rate of 3- 4%.

“We believe that this trend should accelerate further, also supported by recent organisational changes and investments in the sales force/assets in emerging markets,” said SocGen.

It said Croda has one of the best technology platforms for active ingredients/surfactants in personal care, crop care, healthcare and other industrial applications. Croda has a strong standing in the home and personal care industry with tight relationships with multinational HPC companies.

“Croda’s shares had already started to price in the revival of business momentum in Q4 2014, and at a 20x price-to-earnings for 2015, Croda is not a bargain anymore. Nonetheless, it still trades at a 15% discount to European Flavour & Fragrance companies despite a similar growth outlook and even superior profitability and free cash flow generation.”