A gloomy outlook for chemicals giant Croda International PLC (LSE:CRDA) is predicted by analysts at Deutsche Bank and Stifel.
Deutsche analyst Virginie Boucher-Ferte said in a research note on Friday that Croda, which is due to release its results in February, likely had a “weak” second half to 2023.
With underlying earnings that are expected to have shrunk by more than a third, or 35%, during the period, the bank predicts that 2024 will be another “down year” for the chemical company.
Deutsche Bank analysts predict Croda will generate lower profit before tax (PBT) in 2024, estimating an approximately 7% year-on-year slump, below consensus expectations.
Analysts at Stifel also reduced their PBT estimate by circa £10 million for the second half, mainly due to the negative impact of the Argentinian peso devaluation, and cut its already cautious 2024 PBT estimate by 9% "as we no longer anticipate any meaningful margin recovery".
Deutsche said it has reduced its 2024-2026 earnings per share forecasts by 4% to 8% also due to assumed lower margins, and cut its target price by about 2% to 4,500p per share. Stifel's target is 4,100p.
These are both less than Croda’s current market price of 4,583p per share, which has already fallen 1.79% today in early trades and is down around 30% over the past 12 months.
Deutsche, which reiterated its 'hold' rating, is forecasting that Croda generated underlying operating profit (EBITDA) of £140 million during the second half of 2023 and profit before tax of £129 million.
That would put its PBT for the year at about £303 million, a 39% decline year on year, and at the low end of its guidance range of £300 million to £320 million.
The gloomy outlook is based on “well-flagged soft performance across the portfolio further impacted by the Argentinian Peso devaluation and hyperinflation accounting”, Boucher-Ferte said. These currency changes are expected to erode PBT at the chemical company by £10 million.
Analysts also warned of the potential impact of a margin squeeze in the consumer care division, high operational expenses, and the lack of Pfizer lipid sales.
"We expect management to give a relatively broad quantitative PBT guidance range, with the mid point being flat to down YoY,” said Boucher-Ferte.
“At 32x 24E P/E and 18.5x 24E EV/EBITDA, a premium valuation, we do not see the risk reward as attractive.”