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Croda International too expensive for JP Morgan, downgraded to ‘underweight’

The chemical company has jumped in value after signing a contract with Pfizer to supply material for its COVID-19 vaccine

Croda International PLC - Croda International too expensive for JP Morgan, downgraded to ‘underweight’

Croda International PLC (LON:CRDA) was downgraded to ‘underweight’ from ‘neutral’ by JP Morgan as analysts think the stock is too expensive.

Shares were up 7% on Tuesday on the back of an agreement with Pfizer Inc. (NYSE:PFE) to supply excipients, which are substances than improve the efficacy and delivery of the active pharmaceutical ingredients in a drug, to manufacture the US pharma company’s COVID-19 vaccine candidate.

These excipients come from the UK chemical company's recent acquisition of Avanti Polar Lipids.

According to the investment bank, the deal should be value-neutral as it will likely result in an earn-out payment of up to US$75mln to the previous owners of Avanti, which should broadly offset the three years’ earnings contribution from this vaccine.

The underlying earnings (EBIT) contribution should be around £25mln in the year to December 2021.

JP Morgan upgraded the target price to 5,700p from 4,250p which still implies a 15% downside potential.

“The stock reaction yesterday seems excessive to us… Fundamentally, we like the company but not the valuation,” analysts commented.

Shares dipped 2% to 6,549.19p on Wednesday morning.

Quick facts: Croda International PLC

Price: 6082 GBX

Market: LSE
Market Cap: £8.49 billion

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