Broker snap: Credit Suisse upgrades Croda, premium rating warranted

23rd Sep 2013 12:12

Croda International's share price advanced on Monday after analysts at Credit Suisse upgraded their rating on the stock from 'neutral' to 'outperform', saying that the chemicals group provides 'defensive returns and double-digit growth'.The Swiss bank said it expects Croda's earnings before interest and tax (EBIT) to increase at a compound annual growth rate of 11% through to 2016. It said that this growth will be supported by product launches at consumer-care customers, supply-driven innovation in Performance Technologies (which will improve margins), and the ramping up of emerging-market investments.In the short term, Credit Suisse said: "We believe H1 headwinds from agriculture (weather-related), autos and innovation should reverse as we enter H2 2013. This supports a 330 basis-point turnaround in year-on-year organic growth."The stock currently trades at 10.6 times 2014 earnings, a 10% premium to other stocks in the chemicals sector but slightly below its four-year average 15% premium. Fundamentals to Croda's investment case justify this premium, the bank said."We believe the company has successfully transitioned through a profitability improvement period [Uniqema integration after its purchase in 2006] to a top-line driven growth period."The target price for the shares has been raised from 2,600p to 3,000p.The stock was up 1.53% at 2,721p by 12:35.BC