Croda: A covid darling with a ridiculous valuation is at an inflection point
This ingredients company is finally turning a corner, focusing on improving its margins and has a clear rerating potential
Welcome to the 30th investment case and 24th resilience idea on Crack the Market (and the most comprehensive Croda investment case you will find online)! Join me as I dissect an ingredient business that is essential to many of the consumer and life science products around us, has seen its valuation divided by 4 due to a long downcycle, and now represents an asymmetric margin recovery play with a focused management and inflecting momentum.
Twice a week, I will release deep dives into stocks and sectors that fit into the three themes that I see winning in this age of tariffs and deglobalization: resilience, sovereignty & reshoring, China. I will then deep dive into the opportunities in the AI data center value chain.
Take advantage of this once in a generation opportunity to build long term wealth by investing in great stocks that will deliver returns for your portfolio for years to come.
You can already read my first 29 deep dives, all of which I see as winners in this new world of tariffs and deglobalization:
ASML (reshoring & China idea): The most innovative company in the world will 2.5x its EPS by 2030.
LKQ (resilience idea): The most defensive business in the auto industry is a tariff winner and could become a compounder.
Atlas Copco (resilience, reshoring & China idea): The best industrials business in the world is on sale, extremely resilient and will benefit from US reshoring.
Badger Meter (resilience idea): The perfect business in the perfect end market, water meters are the definition of resilience.
Knorr Bremse (resilience idea): Who knew making brakes was this lucrative? Rerating with self help story and upside from German infra plan.
Flex (reshoring idea): The electronics manufacturing giant building Nvidia’s servers and enabling reshoring is becoming a better business.
Itron (resilience & reshoring idea): Riding the grid investment super cycle and enabling smart grids.
Roper (resilience idea): A resilient cashflow compounder in the software space with inflecting growth.
RELX (resilience idea): The company to own forever – one of the very best businesses on Earth.
CPKC (resilience & reshoring idea): The rail connecting Canada/US/Mexico and benefiting from reshoring.
Novo Nordisk (resilience idea): The most exciting pharma company in the world is misunderstood and its growth engine is ready to roar back to life.
Kurita (resilience, reshoring & China idea): Water services expert with improving margins and benefiting from reshoring of semiconductor production.
Halma (resilience idea): High quality compounder in safety, health and environmental technologies.
Quanta Services (resilience & reshoring idea): Countercyclical compounder riding a multi decade infrastructure buildout.
Infineon (China idea): Power semiconductor leader with strong structural drivers (AI power and China auto) amidst a cyclical recovery.
Hubbell (resilience & reshoring idea): Pure play on US electrification demand driven by AI and grid investment cycle.
Iberdrola (resilience & reshoring idea): Best integrated utility in the world with a stellar track record and solid growth driven by networks and renewables
Nvidia (AI & data center idea): The backbone of the AI world is unstoppable.
Veolia (resilience & reshoring idea): Resource management giant (water, waste, energy) due for a rerating.
TJX (resilience idea): The retail giant that keeps winning.
DSM-Firmenich (resilience idea): The diversified ingredient powerhouse benefiting from a transformational deal.
Zoetis (resilience idea): Leader in animal healthcare.
Prysmian (reshoring idea): Global cable leader entering a golden age.
Bentley Systems (resilience & reshoring idea): The software compounder bringing infrastructure into the AI age.
Givaudan (resilience idea): The highest quality and most resilient ingredient compounder has a compelling valuation.
First Solar (reshoring idea): The rising Sun in a new electricity supercycle.
Arcadis (resilience & reshoring idea): An engineering and design consultancy giant poised for a rerating.
Thermo Fisher (resilience & reshoring idea): Life Science tools giant just had its clearing event and is a stealth reshoring winner.
Nexans (reshoring idea): Electrification pure play with visibility into 2030.
After reading this article, you will understand why this company has suffered so much in the last few years, what it does, how it has transformed its portfolio to prepare for the future, why it is seeing an inflection in its business, how it is preparing to come back to its historical margin profile (7-8pts above today), its cost cutting program being accelerated and its valuation becoming disconnected from fundamentals despite serving mainly customers that are outperforming multinationals.
In this article I go through:
Croda’s business and how it has shifted its focus to Consumer Care and Life Sciences.
How the company has invested massively organically and through M&A to become a leading ingredient supplier in many high value niches.
How the company’s volumes and margins have fallen post covid, leading to a crisis of faith in the market.
How it is preparing to get back to its historical margins and with an accelerated cost out programme which could free some cashflow to return to shareholders.
