Barclays turns bullish on Croda, sets GBp3,100 target after years of decline

Investing.com -- Barclays upgraded British speciality chemicals company, Croda International (LON:CRDA) to “overweight” from “equal weight,” saying the chemicals company’s turnaround potential, activist investor involvement and cost savings program improve its risk-reward profile after a prolonged period of weakness, in a note dated Friday.

The brokerage lowered its price target to GBp3,100 from GBp3,600, implying about 16% upside from current levels. Croda shares are down about 70% from their late 2021 peak, compared with a 26% gain for the FTSE 100.

“After four years of share price decline and index exclusion pressure, investor interest in Croda remains anchored to a mean-reversion thesis,” Barclays said. 

The brokerage said activist investor Standard Latitude’s entry marks “a potential turning point, introducing the prospect of more decisive strategic action at a time when management have been initiating early steps toward a turnaround.”

Barclays pointed to Croda’s £100 million cost-savings program as a central driver of potential recovery. 

“We believe the market underappreciated this initiative at H1, but if successful, it could become a key driver of share performance,” the analysts said. The program, focused on tighter cost discipline, could provide upside to consensus expectations.

The report also noted challenges in Croda’s lipid business, pointing to missed opportunities during the COVID-19 vaccine rollout when the company lacked intellectual property–protected ionisable lipids, leading Pfizer to choose another partner. 

Barclays said the lipid market is now likely oversupplied but could still present activist-led restructuring opportunities.

Standard Latitude’s involvement could accelerate portfolio changes, the bank said, with divestments seen as likely. 

“With valuation at trough levels, cost discipline expanding, and now the potential for activist driven divestments, which our report highlights are likely needed, we think Croda’s risk reward now skews more positive,” the analysts said.

In its revised forecasts, Barclays projected adjusted EBIT of £293 million and adjusted PBT of £267 million for fiscal 2025. 

Both estimates are broadly in line with consensus but down from previous forecasts of £295 million and £273 million, reflecting reduced expectations in Life Sciences due to U.S. pharmaceutical headwinds.

The brokerage said it is introducing a sum-of-the-parts analysis alongside a discounted cash flow model in valuing Croda, noting “multiple potential opportunities across the portfolio to accelerate Croda’s turnaround.”

Barclays added that concerns over commoditisation in Croda’s markets may be overstated. 

“Commoditisation concerns could be overdone. Croda is now taking a proactive approach to cost discipline; its savings programme offers upside to consensus,” the analysts said.