US Edition Croda
527p - 31.5p
Questor says BUY
Croda shares are up 38pc since they were recommended on December 9 and, after an impressive performance in the first quarter, the shares remain a buy.
The group manufactures chemicals for the healthcare sector, the cosmetic industry and crop care products used in herbicides and insecticides.
Its other products include lubricants for the oil and gas industry, solutions to help in textile processing and polymers for plastics and packaging, plus many, many more.
Significantly, it owns the intellectual property for many of its products.
Total sales from continuing operations increased 1.9pc to £230.8m in the first quarter, which Questor feels was a great performance against tough comparatives from last year. The market backdrop was also very challenging.
Its key consumer care operations performed very strongly, with revenues rising 26.6pc to £133.7m. Operating profits at the division jumped 37pc to £28.9m and the operating margin increased to 21.6pc from 19.9pc.
It was this division that Questor argued would be defensive throughout the downturn – and it is proving to be exactly that.
Last year, chief executive Mike Humphrey said: "We appeal to two things that will never go away – vanity and ageing." Questor, despite regarding himself as not particularly vain or ancient, concurs.
Of course, as Questor argued last December, no company is immune from the downturn and the group has seen weakness in its home care and industrial speciality chemicals unit. At the latter, sales fell almost 20pc, but this is not surprising given the difficulties manufacturing and other industries are currently facing.
Croda expects weakness in commodity and industrial markets to continue, but it also sees continued sales growth in consumer care.
Prices were increased by 8pc compared with the first quarter of last year and currency effects boosted revenues by 20pc, although some analysts had looked for a stronger performance related to currencies. Cost savings are ongoing and raw material prices continue to fall – with both of these trends continuing throughout the year.
Management also announced the closure of its operations at Bromborough on Merseyside, which it acquired through the purchase of Uniqema. This will incur an exceptional asset write off of around £30m this year and exceptional cash closure costs of £10m. The facility manufactures commodity and industrial speciality chemicals - one of the group's current weak areas. It made an operating profit of £2.1m last year, but this was flattered by strength in the glycerine market – and it was loss-making in the fourth quarter of 2008.
Croda's dividend payout looks pretty secure and the shares are trading on a prospective yield of 3.8pc. The earnings multiple, at 10.7 times forecast 2009 estimates, is a premium to the sector – but Questor feels this is appropriate.
Croda is a quality company, the board has proved its effectiveness at cost management and the group is well diversified in different markets. The company generates more than 90pc of its sales abroad, so it will continue to see benefits from the weak pound. The shares remain a buy at this level.
Cineworld
132p + 1.25
Questor says BUY
Multiplex operator Cineworld had a great 2008, with films such as Mamma Mia! and The Dark Knight keeping its auditoriums full.
This year, it looks like it is continuing to attract cinema-goers, despite this usually being a weak quarter for the industry.
Box-office sales rose 19.1pc in the first quarter of this year, although advertising revenue has, unsurprisingly, taken a tumble.
Revenues for the 17 weeks to April 23 rose 13.2pc, with sales at its retail outlets up 10.1pc. Advertising revenues, however, slid 24.6pc. The big slump in advertising was caused by the expiration of the Carlton screen advertising minimum guarantee payment, which was in place for part of the first quarter of 2008, expiring in February last year.
This summer will also see a number of blockbuster films that will keep bums on seats – the sixth Harry Potter film, a Star Trek prequel, a new Terminator movie, the sequel to Transformers and the latest Dan Brown film, Angels & Demons.
The company has also invested heavily in 3D screens, doubling the number of digital screens it had in operation. This has created the largest 3D estate of any cinema chain in the UK. During 2009, 13 films are scheduled for release in 3D format including Toy Story 3D, Ice Age 3 and James Cameron's Avatar to name a few.
The most important benefit 3D cinema will bring to the group is that this experience cannot be replicated at home. The DVD may be an excuse not to go to the cinema, but if you want to see a 3D film you have to go to your local multiplex. Ticket prices can also be charged at a premium, because of the nature of the films.
Cineworld achieved box-office market shares of 50pc and 46pc respectively for the 3D releases of Bolt and Monsters vs Aliens.
The shares are trading on a December 2009 earnings multiple of nine times, which Questor feels is quite low, and yielding an impressive 7.4pc.
Shares in Cineworld are a buy.