Croda International PLC (LSE:CRDA) fell 2.5% after Jefferies cut its rating on the chemicals group from ‘buy’ to ‘hold’ and trimmed the price target to £30.
The downgrade reflects mounting concerns that the company’s margin recovery is taking longer than expected, with earnings unlikely to show meaningful improvement before late 2026.
The issue lies in Croda’s decision to focus on boosting volumes to improve factory utilisation. While that might eventually restore operational efficiency, it comes at a time when consumer chemicals markets are under pricing pressure. As the analysts wrote, “now is not a favourable time to be adding volumes into the market”.
That pressure is already feeding through to the numbers. Operating margins are forecast to rise only gradually, about 60 basis points a year over the next two years, compared to consensus forecasts of double that pace.
The upshot is a set of earnings projections that sit 4% to 7% below the market’s expectations over 2025 to 2027.
Jefferies now expects Croda to deliver adjusted pre-tax profit of £261 million in 2025, close to the bottom of the company’s own guidance range.
The company’s longer-term pitch remains unchanged: a transition to more premium, innovation-led products, particularly in life sciences and personal care.
But converting customers to a higher-value mix is proving tough in the current environment, and Jefferies is sceptical that meaningful progress will be made until there is a broader upturn in end-market demand.
Meanwhile, the company is moving into a more cash-conscious phase.
Capital expenditure is coming down, and Croda is putting more emphasis on cost control. That could help steady the ship. But with restructuring costs still dragging on cash flow and the benefit of those actions yet to filter through to margins, the short-term investment case looks subdued.
Croda’s shares, last seen at 2,772p, trade at a 6% premium to peers on an enterprise value-to-EBITDA basis, down from a three-year average of 25%.
That narrowing premium reflects a growing sense that the business is struggling to justify its valuation, at least for now. The company will next update the market on 24 February.