UBS downgrades Croda, downplays M&A hopes

10th Jul 2014 13:18

UBS has downgraded chemicals group Croda from 'neutral' to 'sell', saying that the stock's premium valuation to the sector is "unwarranted".The bank explained that the shares have performed resiliently despite the company warning on a loss of pricing power and increasing competition. It said that the current valuation mainly reflects investors' hopes about potential mergers and acquisitions (M&A)."While M&A remains the key risk to our 'sell' call, Croda has been mooted as a perennial bid target. We believe there are no obvious buyers in the US with the exception of Platform Acquisition Holdings, which acquired Chemtura AgroSolutions in April."As for the business performance, UBS said it sees "limited visibility" on a potential recovery of Consumer Care sales which continue to underperform the wider market. Meanwhile, increased competition is affecting Personal Care and there is a weak outlook in Crop Care, it said.The target price for the shares has been lowered from 2,320p to 2,000p.The stock was 2.5% lower at 2,189p by 12:42.BC