Berenberg nudges up target price on Croda ahead of FY results

Berenberg stated 2024 may be a year, initially at least, when Croda's share price temporarily uncouples from its earnings – to the upside - but noted there was likely to be, in its view, another round of cuts to a "stale" full-year 2024 underlying earnings consensus before its 2023 earnings on 27 February.

"The reasons for this are, in our view, the continued pressure on sales in agriculture and higher compensation expenses. We believe the company may guide for a modest decline in earnings yoy in 2024," said the analysts.

However, the German bank, which reiterated its 'buy' rating on the stock, added that Croda's results should show signs of "a gradual recovery" in consumer care volumes as consumer discretionary incomes improve.

"In an environment of falling discount rates, this may lead to a rally in the share price even against the backdrop of trims to earnings. Low leverage should also enable Croda to hold its FY23 dividend flat despite a decline in earnings," said Berenberg.

"The cuts to 2024 and 2025 EPS reflect higher assumed variable remuneration, reductions to which were (on our estimates) a circa £20.0m tailwind to 2023 EBIT. Shares trade on 25.6x 2025 P/E, below peer Givaudan on 29x."

Reporting by Iain Gilbert at Sharecast.com