Croda International PLC (LON:CRDA) was one of the top blue chip risers in London on Tuesday on the back of a double upgrade from Berenberg.
Analysts at Berenberg reckon the speciality chemicals business is undervalued when compared to its peers, while it also likes the company’s ability to deliver “consistently strong organic growth”.
READ: Jefferies downgrades Croda to ‘hold’ from ‘buy’ as risk/reward for the stock appears relatively balanced
“In combination with the company’s admirable track record of innovation, strong returns, and scope for cash returns to shareholders we see no reason why the shares should not trade on a higher multiple, closer to that of other consumer chemicals names,” wrote Rikin Patel.
Patel expects organic growth will return to 4% this year due to a combination of greater demand for premium products in the consumer market as well as a shift in Croda’s customer composition from multinationals to independent players.
“This will be supported by improving growth in the company’s Life Sciences division. We also expect pricing growth to return in light of raw material inflation,” the analyst added.
In a move that will no doubt please investors, Patel expects Croda to announce a special dividend when it announces its full-year results in a few weeks due to good management of its free cash flows and a relatively low net debt-to-EBITDA ratio of around 0.9x.
READ: Croda International sees an acceleration in sales growth
“If a special dividend is paid, we still think that further bolt-on M&A will be an option for Croda.”
As a result of his bullish stance, Patel has upgraded his recommendation from ‘buy’ to ‘hold’, while he has also hiked his price target to £50 (from £41.50).
Croda shares were up 2.6% to £45.85 on Tuesday.