In 2021, the Croda International (LSE:CRDA) share price rose an incredible 53%. It was consistently ranked in the top five FTSE 100 performers list before dropping off to seventh place in December. What were the major factors behind the British chemical manufacturer’s success last year?
Steady long-term growth
2021 was not a flash in the pan for Croda. The company, which was first listed in 1964, has been gaining market momentum for a while now. Five-year returns stand at a whopping 148%, and Croda consistently ranked in the top 10 FTSE 100 performers over this period.
The company carried forward strong momentum from 2020. The decision to acquire the drug delivery systems researcher Avanti Polar Lipids played a crucial role in the development and manufacture of the Pfizer and BioNTech Covid-19 vaccine. This US$225m purchase injected life into Croda’s life sciences and healthcare divisions. And this has shaped how the company is transitioning today.
The revenue from the healthcare division boosted sales by 39% in the first half (H1) of 2021 (ended 30 June). The report showed a pre-tax profit of £229.5m driven by £934m in sales during the six-month period. The life sciences (LS) division grew 60% after the US$100m Covid lipid systems sales.
Although revenue from Covid vaccine sales is expected to wane, the board is already focusing on broader mRNA vaccine applications, which are expected to grow exponentially in the coming years.
Shareholders also received a boost after the chemical manufacturer raised the interim dividend by 10% to 43.5p. The company has steadily increased its shareholder returns for nearly 30 years, which has raised its reputation among investors.
Restructuring phase
The business has slowly been restructuring to move away from the industrial chemical sector. This is not an unexpected move, given that the LS and consumer care sectors brought in 90% of Croda’s total revenue in 2020.
In December, Croda struck a deal to sell its performance technologies and industrial chemicals operations to American commodities group Cargill for a whopping $1bn (£778m).
In a recent press release, chief executive Steve Foots said, “Today’s announcement completes our transition into a pure-play consumer and life sciences company. We will focus our capital and resources on delivering sustainable solutions and scaling our consumer, health and crop care technologies, leading to consistent sales growth and an even stronger profit margin“.
But many analysts feel the deal is undervalued. And I agree with the assessment, given Croda’s global reach in the industrial chemical sector. Investors are backing out and taking profits after this move. This has caused the Croda share price to fall nearly 19% from 10,120p on 31 December to 8,228p earlier today. Even after the recent downtrend, the company is trading at a price-to-earnings ratio of 45.5 times, making it overvalued.
Croda is entering a crucial phase of restructuring. But it does not take away from the stellar year the company had in 2021. The company has made many strategic investments in the last 24 months in the personal care space. And I think the 53% jump in share price in 2021 is a result of years of positive financial performance. I am looking forward to the full-year results, which should give me a lot of clarity on the chemical giant‘s future plans.
Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended Croda International. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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