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• Recent full year results from Croda showed double-digit declines in sales and profits as the specialist chemicals company’s customers responded to the uncertain economic environment by cutting back on orders.
• Yet, despite revenue declining 11% year-on-year on a like-for-like basis to £1,694.5m and operating profit dropping by a third to £247.5m, we don’t think the business is in real trouble, especially relative to other chemicals companies that were hammered even harder by customer destocking. 
• That relative outperformance reflects Croda’s focus on more specialist chemicals that in many cases it is the sole provider for, as well as its higher exposure to pharma, agriculture, and consumer goods products, which are less cyclical than industrial chemicals.
• And 2023 may well be the trough with Croda’s management predicting mid to high-single digit sales growth in FY24. While margins are going to remain depressed, that’s not a huge problem as Croda remains highly cash generative and lightly levered with net debt of roughly 1.4x EBITDA at period end.
• At around 30 times consensus forward earnings Croda may not appear dirt cheap but taking a long-term view, if the economic picture brightens and management can get back to steady market share wins and margin progression then we think contrarian investors would do well by taking a closer look at the business this month.

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