The strong recovery in car production and commodity prices has continued to boost FTSE 100 catalyst and precious metals group Johnson Matthey. The reported results were flattered by rising metal values, which the group passes straight through to clients. But, even excluding these, sales rose 25 per cent to £1.1bn. Underlying operating profits rose even faster, pushing return on sales comfortably over the psychological 15 per cent barrier.
Profits were up 41 per cent to £76.6m in the group's Environmental Technologies unit, which comprises the group's auto and truck catalyst businesses. Double-digit growth in Asia offset market weakness in Europe - a trend management expects to continue. The truck catalyst market benefited not just from a recovery, but also from tighter emission standards in North America, as more catalysts are now needed on each new vehicle.
JM's Precious Metal Products division, which sells platinum, palladium, rhodium and other metals mainly for industrial use, also delivered a sharp increase in profits, up two-thirds to £81m, as the strong recovery in global growth pushed up demand and prices, which are both tailwinds for margins.
Following modest upgrades, JP Morgan Cazenove expects full-year adjusted EPS of 112p, rising to 120p in 2012 (86p in 2010).
JOHNSON MATTHEY (JMAT)
|ORD PRICE:||1,858p||MARKET VALUE:||£4.0bn|
|TOUCH:||1,857-1,860p||12-MONTH HIGH:||1,999p||LOW: 1435p|
|DIVIDEND YIELD:||2.2%||PE RATIO:||21|
|NET ASSET VALUE*:||600p||NET DEBT:||41%|
|Half-year to 30 Sep||Turnover (£bn)||Pre-tax profit (£m)||Earnings per share (p)||Net div per share (p)|
*Including intangible assets of £636m, or 296p a share
Johnson Matthey's 65 per cent market share in the truck catalyst market, which is expected to benefit from a wave of regulation over the next five years, is compelling. But with tougher comparables in the second half, rising input prices and the looming threat of electric cars, the shares look up with events priced on 15 times 2011-12 forecast earnings. Fairly priced.
Last IC view: Fairly priced, 1,583p, 7 Jun 2010