Croda International PLC

East Yorkshire, United Kingdom-based Croda International PLC (CRDA) is a chemical company that 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.

Recent News
On 7^th October 2019, the company hosted an investor seminar about the life science sector. The Life Sciences sector provides compelling organic prospects in both Health and Crop Care, alongside a continued ambition to selectively invest further capital in acquisitions in adjacent technologies.

On 11th September 2019,the company said Massachusetts Financial Services (MFS) Company doubled its stake in the FTSE 100-listed chemicals firm to 10 per cent. Following the transaction, MFS held 13.1 million shares in Croda International Plc and equivalent to 10 per cent of the 128.7 million shares outstanding in the firm.

Financial Highlights (for the six months ended 30 June 2019, £million)

(Source: Interim Reports, Company Website)

Sales at reported rates surged by 1.7% to £714.7 million(H1 FY 2018: £702.8 million) while it was reduced by 1% on a constant currency basis, reflecting a 30 bps decrease in return on sales to 25.1%. Sales in the Core Business increased to £657.9 million (H1 FY 2018: £642.2 million) and increased by 2.4% in reported currency and contracted by 0.4% in constant currency mainly driven by accelerating macroeconomic uncertainties and the trade dispute between the United States and China. Profit before tax on an IFRS basis reduced by 2.7% to £166.2 million (H1 FY 2018: £170.8 million), and IFRS basic EPS declined by 1.9% to 95.6 pence (H1 FY 2018: 97.5 pence). The interim dividend surged by 3.9% to 39.5 pence (H1 FY 2018: 38.0 pence).

Share Price Performance

Daily Chart as at October-08-19, before the market closed (Source: Thomson Reuters)

On 8th October 2019, Croda International Plc shares were trading at GBX 4,788 at the time of writing before the market close (at 8:40 AM GMT), up by 0.673% against the previous day closing price. Stock's 52 weeks High and Low are GBX 5,415/GBX 4,499.12. The company’s stock beta was 0.72, reflecting the lower movement of the stock as compared to the benchmark index.

Conclusion
The life sciences sector is positioned well in the niche marketwith stronger IP & technology portfolio. This sector will also strongly be aligned to megatrends with organic and inorganic growth opportunities. The delivery strategy is increasing the global footprint, accelerating innovation & NPP (New & Protected Product), and greater customer intimacy in the life sciences sector.

Driven by the strength of Health and Crop Care platforms, the company reported a robust performance in the Life Sciences, which rose by 13% and recorded return on sales of 30.6%, helping the company to report a resilient performance in the challenging market conditions. The company expects Life Sciences to show continued progress, and the company boasts a strong pipeline and robust business model, helping its cash generation to improve.

In the second half of the year 2019, the company expects a slight improvement in financials against the prior year and enjoys opportunities for investment for future growth and returns due to low leverage and strong cash generation. However, Personal Care and Performance Technologies, which account for most sales, are expected to remain subdued due to challenging economic and political conditions.

Customers became much more cautious in their purchasingdue to the trade dispute between China and the US and significantly impacting the Personal Care market in the US and North Asia. Moreover, slower end markets in automotive and polymers affected the market for Performance Technologies, and the recent global data does not augur well for the segment.

The company’s P/CF, P/E, EV/EBITDA and EV/Sales multiples are significantly higher as compared to the industry multiple, reflecting overstretched valuations.

Based on the above rationale, we recommend investors to keep a “Watch” on Croda International Plc stock at the current price of GBX 4,788 (as on October-08-19, before the market close), while we look for any upcoming catalysts.
 

DS Smith PLC

London, United Kingdom-based DS Smith PLC (SMDS) is a multinational packaging company. The group comprises of plastic packaging globally and a leading provider of corrugated packaging. The group’s packaging business is differentiated in six segments: The United Kingdom, DCH & Northern Europe, Western Europe, North America, Central Europe & Italy, and Plastics.

On 5^th December 2019, the company will announce the half-year results of 2019/20.

Recent News
On 3^rd October 2019, the company announced the appointment of Gareth Davis, as a Non-Executive Director of Gresham House PLC.

Trading Statement (as on 3^rd September 2019)
In the current scenario, the company persists to progress well despite the macro-economic uncertainty, and the opportunities for overall financial performance remain unchanged. The outstanding consumer engagement and differentiators of service, innovation, scale, and quality has enabled robust pricing discipline.

This, combined through ongoing operating cost-effectiveness and emphasis on cash flow generation, together with new business wins in the United States and Europe, gives the company confidence in the resilient commercial model in spite of ongoing subdued volumes in several markets, in particular, those economies with substantial export-led market exposure.

Europac assimilation and synergy delivery are continuing very well, with the good employee and customer engagement.

Financial Highlights (for the year ended 30^th April 2019, £million)

(Source: Final Results, Company Website)

In FY2019, the company’s reported revenue stood at £6,171 million, an increase of 12 per cent as compared to £5,518 million in FY2018. The growth in revenue was due to an organic growth from Europac and Interstate Resources. The company’s adjusted PBT (Profit before Tax) climbed by 31 per cent to £569 million in the financial year 2019. The Adjusted Basic Earnings per Share from continuing operations rose to 33.3 pence in FY2019 against the 30.7 pence in FY2018. The total dividend per share increased by 13 per cent to 16.2 pence in FY2019.

Share Price Performance

Daily Chart as at October-08-19, before the market closed (Source: Thomson Reuters)

On 8th October 2019, DS Smith PLC shares were trading at GBX 342.30 at the time of writing before the market close (at 9:59 AM GMT), up by 0.38% against the previous day closing price. Stock's 52 weeks High and Low are GBX 466.10/GBX 285.83. The company’s stock beta was 1.09, reflecting the higher movement of the stock as compared to the benchmark index.

Conclusion
The underlying drivers of demand for sustainable ridged packaging stay robustwith an increase in market share and volume growth.

The company’s capital expenditure plan of balancing asset renewal and an increase in investment opportunities and efficiency has been maintained. Efficiency and growth together account for 67 per cent of expenditure. Over the last five years, the revenue of the company has increased at a CAGR of 8.87 per cent while net income after tax has grown at a CAGR of 12.72 per cent, indicating strong growth. The company also made significant progress with an uptick in profit levels and strong momentum in the market share.

While volatility in the macro-economic environment and input costs stays, the emphasis on pricing discipline, margin progression, improved cost and efficiency improvements, and cash generation supports the anticipation of additional good progress in the current year. Before the end of this calendar year, the company is expecting the completion of the disposal of the Plastics division.

Based on the above rationale, we have given a "HOLD" recommendation at the closing price of GBX 341 (as on 07 October 2019).

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