Croda/chemicals: quiet giant has a winning formula
The UK group will keep up its momentum so long as it stays focused on innovation and fast-growth sectors
Croda is large, low-profile and has always stayed close to its roots. The Yorkshire base of the UK specialty chemicals company is only miles from where it first made lanolin, a rust preventer, from wool nearly a century ago. Croda may now divest its industrial businesses. That would shift its focus further towards the faster-growing consumer and life-sciences sectors.
It would be a natural conclusion to the long run-off of industrial chemicals business as UK stock market investments. That process was initiated with the break-up of ICI from the nineties onwards.
The two units — industrial chemicals and performance technology — made up 37 per cent of revenues last year. Their share of operating profits was less than half that.
The units should command a price tag of about £1bn, assuming a multiple of 13 times 2020 ebitda. That was the valuation of the specialty ingredients business of Switzerland’s Lonza, for which Bain paid $4.7bn in February.
The extra funds would help fuel expansion. Shedding the cyclical businesses should also help the share valuation challenge the heights of rival ingredients companies such as Givaudan. Not that investors have cause for complaint. The stock is up four-fold since the start of 2011 for a market capitalisation of £9.6bn.
Croda has had a low profile. It would have been a worthy contender for inclusion in the Lex column’s “XFT Index” — which shows performance is often inversely correlated to column inches in the newspapers.
A recent row over vaccine nationalism brought Croda to wider attention. The group supplies a vital ingredient — lipids — for the BioNTech/Pfizer coronavirus vaccine, complicating Brussels’ threat to ban exports of the vaccine to the UK.
Investors were giving the group credit for a string of savvy bolt-on deals before that. These takeovers, combined with university partnerships and above-average research spending, has helped it occupy lucrative niches.
Croda will keep up its momentum so long as it stays focused on innovation and fast-growth sectors. Investors should support mooted disposals that would make the company a cleaner proposition.