Croda’s 2022 Results Show Solid Growth

Narrow-moat Croda CRDA reported 2022 EBIT of GBP 515 million, up 10% versus 2021, but broadly in line with company-compiled consensus and our forecast. In 2023, the company expects sales growth in consumer care and life sciences to be supported by demand for cropcare and noncoronavirus-related pharmaceutical products. However, management expects performance to be second-half-weighted due to the divestment of performance technologies and industrial chemicals. Despite lower volumes for COVID-19-related products, lipid system sales expectations for 2023 remain unchanged at $120 million, with growth returning in 2025 as clinical opportunities in mRNA and nucleic acids are converted into commercial projects. This seems to align with current company-compiled consensus expectations of a 5%-7% decline in sales and EBIT during 2023. Regardless, we don’t expect to make a material change to our forecast or GBX 5,400 fair value estimate. Consequently, shares continue to look overvalued.

In 2022, the consumer-care segment achieved record sales and adjusted operating profit increased by 9%, driven by a price/mix increase. However, volume was 12% lower than 2021 due to customer destocking and selective demarketing of lower-margin products. Sales growth was strongest in beauty care, with benefits from strong pricing and good demand from multinational customers. However, flavors suffered from raw material price inflation. The homecare business continued to roll out high-value proteins for fabric care.