Broker tips: Croda, Travis Perkins

(Sharecast News) - RBC Capital Markets cut its price target on Travis Perkins on Monday to 1,200p from 1,250p. The bank said it had brought forecasts down for the trading update and now forecasts 2023 profits broadly in line with guidance and 2024 profits broadly in line with its prior 2023E number, so effectively pushing out a year.

"Whilst the UK macro remains uncertain, we continue to see significant value in the group on a longer term basis and believe structural drivers remain robust," it said.

RBC rates the shares at 'outperform'.

On Friday, Travis Perkins warned as higher interest rates and weaker consumer confidence weighed heavily on house building.

The builders' merchant said it had "not seen the anticipated easing of market conditions in the second quarter to date".

JPMorgan Cazenove slashed its price target on Croda to 5,000p from 6,200p and retained its 'underweight' rating.

The bank said the new price target is based on around 22x 2025 estimate price-to-earnings, with the target multiple still reflecting an optimistic premium to last 10years.

JPM said the company's recent earnings reset by management reduces near-term risks, although the visibility on 2H23/2024 earnings recovery remains low, in the bank's opinion.

"Further, fundamentally, a pronounced earnings decline in 2023 with an implied 5-year organic EBIT compound annual growth rate of circa 2% and around 8-9% points decline in post-tax ROIC over this period (due to a step-up in M&A and to a lesser extent organic growth capex) do not justify the market expectations of a structural substantial step-up in organic growth and as a result substantial re-rating of the shares seen over the past four years, in our opinion," it said.

JPM's lowered FY23/24 adjusted earnings per share estimates are 5%/11% below post-warning company consensus.

"Some of the current earnings pressure - 2023E adjusted EBIT likely to be down 15% year-on-year ex Covid-19 vaccines related earnings - reflect the sector-wide cyclical downturn and inventory destocking trends," it said.

"However, the company has likely also continued to lose material market share in its consumer care business, in which 2023e volumes are likely to be around 15% below 2018 levels."

Croda tanked on Friday after warned that full-year profits were set to fall on the previous year, citing lower sales volumes and customer destocking.

The specialty chemicals company said in an update that while sales volumes in the consumer care division are up versus the final quarter of 2022, they remain down double-digit percentage compared with the same period last year due to customer destocking through the second quarter.