Johnson Matthey plc Ordinary GBP1 (JMAT)

Company overview

Headquartered in central London, Johnson Matthey is a specialist chemicals manufacturer whose activities are divided between three divisions: catalysts (manufacture of automotive catalytic converters, pollution control systems and components for fuel cells), manufacturer of pharmaceutical compounds and refiner and distributor of precious metals such as platinum and gold. Its stock is traded on the London Stock Exchange and is a constituent of the FTSE 100 Index.

HL Comment (1 February 2012)

The group's third quarter trading update saw management noting “further good progress." Compared with the same period last year, sales excluding precious metals (sales) were up 22% at £649 million and underlying profit before tax increased by 34% to £104.3 million. The group's Environmental Technologies Division continued to lead the way, with sales up 20% to £461 million on increased operating margins. The performance was driven particularly by good growth in Asia and North America. Light duty vehicle catalyst sales grew by 14%, well ahead of the 1% growth in global light duty vehicle production during the period. Accompanying management comments noted that "the group's good performance was expected to continue for the rest of the financial year."

Negative Points:

• Johnson Matthey's performance is closely linked to the automotive industry.
• The UK and Europe currently account for around 35% of the group's sales.
• The group remains exposed to the price movements of precious metals. With the outbreak of the credit crisis in early 2008, many precious metal prices declined.
• Higher rare earth prices can adversely impact profit margins.

Positive Points:

• The board anticipates that the group's results in the second half will be slightly ahead of those for the first six months of the year.
• "The outlook for our Environmental Technologies Division remains good and, as normal, the fourth quarter is expected to be its strongest" highlighted management.
• The Fine Chemicals Division enjoyed a solid performance, with sales up 15% to £62 million and good growth in operating profit seen.
• The company previously highlighted increased investment in R&D in order to target new areas of future growth for the business.
• The group's balance sheet was again described by management as 'strong'. As of 31st December 2011, group net debt was £442 million, approximately £175 million lower than at 30th September 2011. The reduction was largely due to a significant decrease in working capital in response to lower platinum group metal prices.
• The dividend policy remains progressive. The half year payment announced back in November saw a 20% increase compared to the prior year.

Consensus:

On balance, market consensus opinion currently denotes a strong hold.

All yield figures are variable and not guaranteed.

Fundamental Data

Values are quoted in the stock's local currency: British pound.