Croda rallies 7.6% as leading turns bullish ahead of results

Shares in Croda jumped 7.6% to 3,148p after JPMorgan reiterated an 'overweight' rating and raised its price target to 4,000p, arguing the worst of the earnings downgrade cycle is over. JPMorgan forecasts adjusted EPS to grow at a 13% CAGR from 2025–2028 and says its 2026/27 EPS estimates are 4–5% ahead of consensus, citing stabilising post-COVID margin compression (EBIT margins down to 17% from pre-pandemic 25%) and an expected target of mid-20% margins in FY25. The bank also expects a new mid-term financial framework alongside results due 24 February, and notes Croda currently trades at a discount to its historic forward P/E of ~20x.

Analysis

Market structure: Croda (LSE:CRDA) is a quality-heavy specialty-chemicals winner if JPMorgan’s view is right — JPM lifted PT to 4,000p (≈+27% from 3,148p) citing a 13% adj. EPS CAGR 2025–28 and margin recovery from 17% toward mid-20s by FY25. Direct beneficiaries include Croda suppliers of high-margin oleochemicals and distributors; losers are low-margin commodity chemical producers and any small peers with weaker mix (likely to see relative de-rating). Expect modest reallocation from broad materials funds into specialty-chem names, supporting relative outperformance for CRDA vs XLB-style basic materials ETFs over 3–12 months.

Risk assessment: Key tail risks are: (1) a disappointing mid‑term framework or guidance miss (10–15% probability) that wipes out rerating, (2) a sharp feedstock price shock (palm kernel/oleochemicals) or REACH-style regulatory action (5–10%), and (3) M&A/integration failures if inorganic growth is emphasised. Immediate risk window is Feb 24 results (days); short-term outcome depends on messaging and margin bridges (weeks–months); long-term hinges on execution to deliver 13% CAGR to 2028 (quarters–years). FX (GBP moves >2%), credit spreads widening, or higher US rates are second-order risks to valuation multiples.

Trade implications: Direct play is a sized long in CRDA ahead of results with defined risk: targeted entry 2–3% portfolio weight, stop-loss −12% and take-profit near JPM PT 4,000p (or scale-out at +15%/+25%) within 1–6 months. Pair trade: long CRDA vs short XLB (or short Synthomer LSE:SYNT for UK peer exposure) to harvest quality premium; size pair 1:1 notional for 0.5–1% net portfolio exposure. Options: buy a Feb24–Mar expiry call spread (buy ATM ~3,150p, sell 4,000p) to cap premium with upside participation; alternatively buy protective puts if you hold outright ahead of results.

Contrarian angles: Consensus may underweight execution risk — JPM’s EPS is already 4–5% above consensus for 2026/27, leaving limited beat room; a small negative surprise could compress multiple sharply. The market reaction to reaffirmation could be overdone intraday (7.6% move) but underdone for a sustained rerating if management delivers a credible mid‑term framework and capital return plan. Historical parallel: past post-COVID margin rebounds in speciality chemicals led to 12–24 month re-ratings only when margins sustainably hit guideposts; if Croda misses mid-20s margin targets or delays buybacks, downside of 15–25% is plausible.

Key Decisions for Investors

• Establish a 2–3% long position in Croda (LSE:CRDA) before results (by 24 Feb 2026), size with a hard stop-loss at −12% and staggered take-profits: sell 40% at +15% and remainder at or near JPM PT 4,000p (~+27%).
• Implement an options-defined bullish trade: buy a Mar/Apr 2026 call spread (long ~3,150p, short 4,000p) sized to replicate 1% portfolio exposure; max loss = premium, target >20%+ move to break even.
• Run a relative-value pair: long CRDA vs short basic-materials exposure (short iShares Materials ETF XLB or short Synthomer LSE:SYNT) notional 1:1 for 0.5–1% portfolio tilt to capture quality premium; rebalance if CRDA underperforms by >10% in 30 days.
• Predefine downside reaction: if FY25/26 guidance implies adj. EBIT margin <22% or JPM/consensus EPS is revised down >5% post-results, cut net exposure by 50% within 24 hours and buy 6–12 month puts as hedge.
• Monitor two near-term catalysts daily: (1) Croda’s mid-term framework release on 24 Feb and (2) palm oil/palm kernel oil futures moves (if futures rise >20% YoY or 10% MoM flag), and adjust position sizing/hedges within 48 hours of such signals.