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Croda International sees an acceleration in sales growth

Published: 20:37 31 Oct 2017 AEDT

Cosmetics
Croda has a diverse cosmetic product range

Speciality chemicals company Croda International PLC (LON:CRDA) enjoyed a rare sojourn at the top of the Footsie leader-board after a strong third quarter trading update.

The company boasted of continued organic revenue growth, driven by its Personal Care division.

READ: Croda reports first half profit growth, boosted by sales in core businesses

Sales rose by 4.4% on a constant currency (CC) basis to £335mln in the third quarter from a year earlier.

Across the three core sectors – Personal Care; Performance Technologies; and Life Sciences – sales rose 5.7% year-on-year (y-o-y) on a CC basis.

Sales were up 7.5% in Personal Care; up 7.0% in Performance Technologies; and up 0.7% in Life Sciences.

The profit margin increased slightly from a year earlier, reflecting improved product mix and pricing.

Net debt at the end of the quarter was little changed from three months earlier.

Capital investment is at its peak, with the group’s North American bio-surfactants plant expected to commission towards the end of the year.

"We continue successfully to deliver on our priorities for 2017 - driving profitability through premium, faster growth market niches; improving performance in less differentiated markets; and making progress towards our target increases in return on sales in Life Sciences and Performance Technologies,” said Steve Foots, chief executive officer of Croda.

“The combination of good top line growth and margin in Q3 gives us confidence in delivering our expectations for the full year," he added.

Analyst comment

Liberum Capital, which rates the shares as a ‘hold’, said the update revealed a pleasing sequential improvement in the underlying growth rate.

“The standout feature of the period appears to be the high margin Personal Care Division where CC sales growth was +7.5% y-o-y in the quarter, accelerating from 2.3% at the 1H stage. It appears this has been driven by continued strong growth in the actives portfolio but now a recovery in the functional ingredients side as well (aka specialties or surfactants, personal care stabilisers),” Liberum’s Adam Collins said.

Collins noted that the Personal Care division’s underlying earnings (EBIT) margin is about one-tenth of a percentage point higher than the rest of the group’s, auguring well for second half profit development.

“We suspect, though, the functional ingredients side is less profitable than actives. The functional ingredients growth acceleration is encouraging but it should be noted it follows two years of marked softness,” Collins observed.

The consensus forecast for full-year EBIT is £330mln and Liberum thinks there might be some upgrades, depending on how the analysts’ call with management goes.

Croda shares were up 3.6% at 4,159p in mid-morning trade, having risen to a 52-week high of 4,220p earlier in the morning.

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