Broker tips: Croda, Michelmersh Brick

(Sharecast News) - Speciality chemicals firm Croda surged on Wednesday as Morgan Stanley upgraded the stock to 'overweight' from 'equalweight' and lifted its price target to 3,350p from 3,280p as it pointed to pricing agility ahead of peers. Morgan Stanley said investors have mixed views about Croda's pricing ability, given historical competitive pressures through the 2021/22 inflationary cycle and price-mix negatives in 2025, to drive operational gearing.

"However, Croda performs particularly well in an inflationary cycle, passing through input inflation across its portfolio typically at circa 1 quarter lag to higher raw materials increases - faster than peers typically requiring circa 2 quarters - thereby broadly tracking its inventory levels (circa 2.6 months)," it said.

"As a result, we believe Croda will be one of the fastest players to pass on input inflation to customers (noting that most of its ingredients represent a single-digit percentage of total customer production costs), offering absolute profit protection."

The bank also noted that Croda was one of the few ingredient names with limited/no downside risk to FY26 adjusted earnings per share consensus estimates, and said it now offers superior 2026 LFL/adjusted EPS growth prospects to most.

Morgan Stanley lifted its FY25/26/27 EPS estimates by 4.0%/+3.6%/+3.7%. respectively. to reflect higher pricing, slightly lower volumes - mainly across consumer care and industrial specialties - and slightly lower FX negatives.

Analysts at Berenberg lowered their target price on Michelmersh Brick Holdings from 150p to 120p on Wednesday, but noted the firm has been succesful in maintaining market share amid "customer uncertainty".

Michelmersh released its FY25 results on 24 March, reporting underlying earnings that were broadly in line with Berenberg's forecasts and revealed that it had maintained its UK market share during the year amid gradually rising volumes, customer uncertainty and "a highly competitive" pricing environment, as industry production increased. However, the German bank noted that market conditions in Belgium had "remained challenging".

Although Berenberg expects the group to see EBITDA increase further in FY26, it also said was "cognisant of ongoing headwinds" relating to pricing pressure and customer uncertainty.

"We expect that the challenges that the group faced in FY25 will continue into FY26, given the ongoing uncertainty regarding momentum in the UK construction industry and the Belgian brick market. The conflict in Iran has further affected consumer confidence, extending this period of uncertainty, in our view, although we note that the group has already secured 75% of its energy requirements for FY26, limiting its exposure to energy price volatility," said Berenberg.

"As such, we have lowered our EBITDA forecasts for 2026-28 by 3-5%. We have also lowered our price target from 150p to 120p, but maintain our 'buy' rating."