Broker snap: Canaccord says Croda is a 'clear sell'

23rd Jul 2013 10:25

Interim results from Croda International may have just about met consensus forecasts, but Canaccord Genuity said it was slightly disappointed, leaving its 'sell' rating for the stock.Sales rose 1.3% to £562.7m while pre-tax profit rose 6.3% to £133.1m.However, second-quarter earnings before interest and tax (EBIT) grew by an "unimpressive" 4.4% to £71.1m, Canaccord said."The stock commands a premium that the fundamentals no longer justify. This is now the fourth straight quarter of below-trend operating profit growth. Returns on investment are impressive, but as growth slows the company is struggling to grow shareholder value."The broker said that in the eight years before the acquisition of consumer care additives firm Uniqema back in 2006, Croda destroyed shareholder value at an average rate of -1.8% per annum."One could easily argue that all of the value creation over the past 15 years is down to the highly successful Uniqema deal. We worry that with no more deals of that scale on the horizon value creation could slow significantly."Canaccord has raised its target price for the stock from 1,960p to 2,000p but said with a share price more than 20% above fair value, "Croda remains a clear sell".