Croda’s COVID-19-Related Sales Drive First-Half Beat and Guidance Lift; Shares Overvalued

We previously asserted narrow-moat Croda was set for a stellar 2021, as reflected in our above-consensus estimates. However, even our aggressive stance has proven too conservative. The company reported first-half EBIT of GBP 242 million, beating the Visible Alpha consensus by nearly 18%. This drove the shares 6% higher on the day. Sales for lipid systems supporting Pfizer’s COVID-19 vaccine were the biggest driver, although the rest of the business was also strong. Croda revised its 2021 sales expectations for COVID-19 lipid systems to at least $200 million from $125 million previously. We will raise our near-term estimates but continue to expect the COVID-19-related sales to fade over time. Consequently, we don’t expect to make a material change to our GBX 4,600 fair value estimate. At current levels, the shares look significantly overvalued.