Is Croda International plc a top FTSE 100 stock for blue-chip growth hunters?

Burning Question proper size

Croda (LSE: CRDA) might not be the FTSE 100’s most glamorous company, but when it comes to steady, predictable growth, the group is certainly one of the FTSE 100’s top picks.

Over the past five years, Croda’s revenues and earnings have pushed steadily higher as demand for the group’s products has steadily increased. Based on City projections for this year, the company’s revenue is set to have grown by approximately 30% since 2012, and over the same period earnings per share are on track to have increased by 42% from 122p to 173p. 

It looks as if the firm should hit these forecasts, according to the results for the six months ending 30 June that were published today. At constant currency, sales for the period expanded by 3.8% and adjusted operating profit grew 5.4% year-on-year. The company affirmed its full-year outlook within the results and announced a 6.9% increase in its interim dividend.

Commenting on the results, Chief Executive Officer Steve Foots said: “Our strategy delivered a good first half performance with all Core Business sectors growing sales and profit organically, highlighting Croda’s increased breadth across three growth sectors. This was underpinned by growth in premium market niches, continued organic investment and our relentless focus on innovation. It was encouraging to see growth coming from a broad base of both product and geography.”

Organic expansion 

Croda’s organic growth has been powering the group’s development over the past five years, and it does not look as if this growth is set to slow any time soon. The business is focused on the production of personal care, life sciences and performance technologies, all of which are specialised markets where Croda’s size and experience should allow it to continue to profit and generate returns for investors. 

These sectors might not be exciting, but they are extremely lucrative. For the first six months of the year, the company generated a return on sales of 24.9%, making it one of the market’s most productive companies. This level of profitability, combined with the group’s skill in key markets is enough to justify its high valuation of 22.3 times forward earnings. If the company repeats its growth performance of the past five years, this valuation will soon be out of date.

Highly defensive 

Croda’s FTSE 100 peer Smith & Nephew (LSE: SN) has similar qualities. The medical device group generates the majority of its revenues through its orthopaedics division, which manufactures knee joints, braces and other supports, a highly specialist line of business. 

Smith & Nephew’s growth over the past five years has hardly been what you would call explosive, but at around 6.4% per annum, it has been predictable and lucrative. The company generates a near 20% return on capital, once again making it one of the market’s most productive companies. And this kind of predictability is worth paying a premium for. The shares currently trade at a forward P/E of 19 and support a dividend yield of 2%. Shares in the orthopaedics company have returned 113% over the past five years, including dividends.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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