Introduction:
Croda is a specialty chemical company, with a focus on consumer care. It specializes in deriving its products from naturally occurring oil and fats, and operates in niche market segments, where innovation is the key factor for success. The company was founded in 1925 and ever since then has driven organic growth in developing its new businesses.
Management focuses on best practice and a high quality strategy ahead of volume. Because Croda excels mostly in niche products and maintains key industrial procedures, it maintains significant pricing power. Defending this pricing power is part of the company’s management objectives.
The demand for Croda’s products is strongly exposed to consumer megatrends (e.g. in personal care, healthcare, nutrition and anti-ageing), as well as trends in performance technologies, through their lubricants, coatings, homecare and oil and water separation products (which are of key importance in the oil recovery area).
It is estimated that the company will return about GBP 250 million to investors over the next few years, either by means of special dividends or share buy backs. Alternatively, it could proceed with a further acquisition to drive emerging market business exposure.
Strengths and weaknesses analysis / Fundamental analysis:
Strengths:
- Historically, Croda has an outstanding track record for organic growth. On only a very few occasions have its direct competitors (IFF Group, Givaudan, and Symrise) performed better,
- The company’s key operating metrics are mostly above other UK chemical companies,
- Croda products withstand uncertain macro times better,
- The company focuses on price and quality over volume.
Weaknesses:
- Croda regularly trades at a premium to other UK specialty chemical firms and its operations are leveraged above the peer-group average,
- Future profitability relies mostly on the company’s own R&D pipeline,- In its key market segments, maintaining the present price/quality mix is becoming more challenging than ever,
- The company’s products are exposed to cyclical movements and consumer sentiment. Its sales could suffer with a further deterioration of consumer sentiment in Continental Europe.