Overview
Morgan Stanley upgraded Croda International to "overweight" from "equal-weight" on Wednesday and raised its price target to 3,350 pence from 3,280 pence. At Tuesday's close of 2,743p, the new target implies roughly 22% upside.
Why the upgrade
The bank pointed to Croda's demonstrated ability to pass on raw material inflation more rapidly than a group of peers. Morgan Stanley modelled that Croda can effect price increases with about a one-quarter lag, compared with an approximate two-quarter lag it sees for competitors such as Givaudan, Symrise and DSM-Firmenich. The brokerage estimated raw material inflation of around 9% for fiscal 2026 and expects pricing to start feeding through from May.
Financial modelling and forecasts
Morgan Stanley now projects a net price-mix of 3.1% for the full fiscal year. The note states that roughly 58% of Croda's raw material exposure is to bio-based inputs, specifically palm, rapeseed and sunflower oil. The bank increased its adjusted earnings per share (EPS) estimates for fiscal 2026 and 2027 by 3.6% and 3.7% respectively. Its FY26 EPS forecast is 156.5p, compared with a consensus figure of 156.1p.
The brokerage's revenue outlook calls for £1.77 billion in 2026, rising to £1.85 billion in 2027.
Cash flow and shareholder returns
Morgan Stanley highlighted that free cash flow now covers Croda's ordinary dividend for the first time following a multi-year capital expenditure cycle. The bank projects free cash flow to dividend coverage of 1.2 times in FY26, improving to 1.7 times by FY28.
Growth and margin context
In Morgan Stanley's view, Croda's like-for-like growth for 2026 of 3.8% and adjusted EPS growth of 7.2% are both ahead of peer averages of 2.2% and 6.4% respectively. The brokerage set out scenario-based valuations: a bull case price target of 6,000p that assumes a sharp recovery in Life Sciences and Consumer Care, and a bear case of 2,000p that assumes ongoing pricing pressure, market share losses and EBITDA margins declining to about 21.5%.
Near-term industry cues and flagged risks
Morgan Stanley flagged Givaudan's April 14 results as a near-term industry read-across. The note also called out specific risk factors: a potential weakness in fine fragrance demand - noting that roughly 38% of Croda's fragrance sales are linked to the Middle East - and volume pressures that could arise if higher energy costs squeeze consumer budgets.
Bottom line
The brokerage's upgrade rests on Croda's relative pricing power and an expectation that recent raw material inflation will pass through into prices faster than for key peers. Adjusted EPS and revenue estimates were nudged higher alongside an improving free cash flow outlook that supports the ordinary dividend.