LONDON -- To me, capital growth and dividend income are equally important. Together, they provide the total return from any share investment and, as you might expect, my aim is to invest in companies that can beat the total return delivered by the wider market.
To put that aim into perspective, the FTSE 100 has provided investors with a total return of around 3% per annum since January 2008.
Quality and value
If my investments are to outperform, I need to back companies that score well on several quality indicators and buy at prices that offer decent value.
So this series aims to identify appealing FTSE 100 investment opportunities and today I'm looking at Croda International (CRDA 1.28%), which describes itself as a world leader in natural based speciality chemicals, sold to virtually every type of industry.
With the shares at 2709p, Croda's market cap. is £3,791 million.
This table summarises the firm's recent financial record:
| Year to December | 2008 | 2009 | 2010 | 2011 | 2012 |
|---|---|---|---|---|---|
| Revenue (£m) | 911 | 828 | 1,002 | 1,028 | 1,052 |
| Net cash from operations (£m) | 57 | 155 | 132 | 164 | 138 |
| Adjusted earnings per share | 48p | 53.8p | 95.4p | 122.5p | 128.7p |
| Dividend per share | 19.75p | 21.5p | 35p | 55p | 59.5p |
Employing around 3,300 people in 34 countries, Croda uses a variety of technologies to manufacture a range of oleochemical and speciality products, used as ingredients, additives, or processing aids across several industries.
Last year, around 56% of revenue came from the firm's consumer care sector, which produces personal, health, and crop care solutions; 36% came from performance technologies, which produces things like lubricant additives, coatings, polymers, and home care products; and 8% came from industrial chemicals, which concentrates on the likes of textile, leather, and fiber finishes, surfactants, and chemical intermediates.
The chemical business has been booming for Croda and that looks set to continue, which could lead to decent investor total returns from here.
Croda's total return potential
Let's examine five indicators to help judge the quality of the company's total-return potential:
- Dividend cover: adjusted earnings covered last year's dividend just over twice. 4/5
- Borrowings: net gearing is around 60% with net debt about 82% of earnings. 4/5
- Growth: revenue and earnings have been growing against bumpy cash flow. 3/5
- Price to earnings: a forward 17.8 looks ahead of growth and yield forecasts. 2/5
- Outlook: good recent trading and a positive outlook. 5/5
Overall, I score Croda 18 out of 25, which encourages me to believe the firm has potential to out-pace the wider market's total return, going forward.
Foolish summary
Under-control borrowings and decent dividend cover from earnings combine with a positive outlook to form a list of attractions. Cash flow has been a little bumpy, and a lot of further growth expectation seems already in the price.
That said, I'm going to keep an eye on Croda for an attractive entry point. It's on my list of attractive growth opportunities along with a share that one of the Fool's top investment writers has uncovered. He has put his money where his mouth is by investing and believes the share is the "Motley Fool's Top Growth Share for 2013". In this new Fool report, you can discover how the firm has re-envisioned itself to allow for tremendous growth along new horizons. Right now, the report is free to download and tells you exactly why our expert has invested in, and expects strong growth from, this changing company with a strong pedigree. To get your copy, click here.
