Croda: Difficult Trading Environment Continues to Hit the Bottom Line; Shares Attractive

Narrow-moat Croda issued a trading update that indicated customer inventory management continued to depress volumes for a large share of the portfolio in third-quarter 2023. As a result, management reduced full-year guidance group-adjusted profit before tax to between GBP 300 million and GBP 320 million, from a range of GBP 370 million to GBP 400 million previously. Despite this short-term headwind, we confirm our GBX 5,900 fair value estimate as the lower 2023 volumes and negative operating leverage are largely offset by the time value of money adjustment in our model. We view the current share price as an attractive entry point for this stock that has leadership positions in biological drug delivery and the high-value beauty actives subsegment.