Croda International Plc (LON: CRDA)

Croda International Plc is the UK’s largest diversified chemicals company in terms of market capitalisation. The group manufactures, creates, and markets speciality chemicals for an array of diverse products including engine lubricants, health and beauty, plastics and several more. The operations of the company are differentiated in four operating segments: Performance Technologies, Personal Care, Industrial Chemicals, and Life Sciences.

Interim Financial Highlights: H1 FY19 (period ended as on June 30, 2019)

Source: Co. filings

During the period under consideration, the group's performance was relatively better on a YoY basis on a reported rate; however, its performance deteriorated on a constant rate. As core businesses sales increased by 2.4% to £657.9m on reported rate, however, shrank marginally by 0.4 per cent on a constant rate. Operating profit for the first half under consideration improved by 0.5 per cent to £179.4m against £178.5m reported in the year-over period(reported basis). Operating margin for the period on reported rate stood at 27.3 per cent, marginally lower on a YoY basis.  Led by relatively lower operating profit and margin, the group’s EPS plummeted by 2.0 per cent to 98.2 pence from 100.2 pence reported in the year-over period (reported rate).

However, the group’s cash generation improved substantially in the H1FY19, as free cash flow was up significantly by 51.9 per cent to £94.5magainst the year-over period. Comparatively, lower performance of the group in the H1FY19 was primarily driven by weakness in the Personal Healthcare segment mainly in the US and North Asia, invoked by trade tension between US and China - Sales slumped by 3.6 per cent in personal healthcare segments. Performance Technologies segment also reported weakness due to soft markets in automotive and polymers - sales reduced by 6.0 per cent.

Stock Performance
 
Daily Price Chart (as on December 17, 2019), before the market close. (Source: Thomson Reuters).

Shares of CRDA delivered a muted return over the past one year, as was up by just 2.0 per cent on a YoY basis, increased 2.3 per cent on a YTD basis, grew 2.25 per cent in the past three months, added 3.4 per cent in a month-over period and increased approximately 1 per cent in the past five trading sessions.

At the time of writing (as on December 17, 2019), shares of CRDA traded 4.0 points or 0.08 per cent higher to GBX 4,914. In the past one year, its shares registered a 52w high of GBX 5,415 and a 52w low of GBX 4,510, respectively.

Conclusion
The group’s performance was relatively moderate in the first half of the FY19, driven by escalated traded tension between the two world’s large economies- US and China, which has jolted the group’s products demand in a range of industries. Especially, contracting demand in its personal care and performance technologies segment is dragging the group's financials

However, a phase-1 trade deal negotiated between the US and China recently which would bring some sort of relief to many sectors, despite that, the group’s performance in the second half of the FY19 is expected to be lower as the majority of period went through the stressed demand and lower product penetration. From the technical standpoint, shares of CRDA still trading below its long-term support level of the 200-day simple moving average (SMA), which is an unfavourable trend in a stock.

Therefore, based on the above rationale, we have given a “Watch” recommendation at the current price of GBX 4,914.0 (as on December 17, 2019, before the market closed), while we look for the growth catalysts in the near-term.

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