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Johnson Matthey gets ready for car industry crunch

Covid-19 shutdowns only hit the end of the component maker and PGM company's financial year, but it still had a big impact
June 11, 2020

Carmakers are still facing an extremely uncertain trading environment, despite recent factory re-openings, meaning suppliers are being left in limbo. 

IC TIP: Hold at 2,130p

The lion’s share of Johnson Matthey’s (JMAT) sales come from exhaust components to automakers, and so it took a hit from Covid-19 towards the end of its year to 31 March. There was a £60m knock to underlying operating profit - despite overall revenue being up almost 36 per cent - and it has cut its final dividend in half compared to last year’s payout of 62.25p. 

Of the Covid-19 operating profit hit, half was from lower demand from carmakers, while the rest came from higher trade debtor provisions and delayed deliveries. Compared to a year earlier, Johnson Matthey also owed an extra £1bn to suppliers as at 31 March, with current trade and other payables climbing to £2.7bn. 

The conditions have seen the group commit to cutting around 15 per cent of its workforce over the next three years.  Chief executive Robert MacLeod said carmakers were starting production again, but the speed of return was unclear. “In Clean Air [the exhaust division], our customers are gradually ramping up their plants but visibility on the path of recovery remains low,” he said. The company has not set guidance for this year. 

There were positives to its 2020 financial year – the continued strength of platinum and palladium prices meant the recycling and refining business has done extremely well. Liberum estimates that a 10 per cent increase in the price of Johnson Matthey’s platinum group metals (PGM) basket adds an extra £5m to operating profit. Palladium and rhodium were up 56 per cent and 137 per cent respectively in the 12 months to 31 March, while even platinum managed a 5 per cent increase. This led to a £47m boost to the division’s underlying operating profit from higher metals prices alone, helping the margin jump 5.5 percentage points to 23.8 per cent. Supply interruptions from Covid-19 mean these high palladium and rhodium prices are not likely to go away in the coming year.

Liberum forecasts a March 2021 underlying operating profit of £382m, down from £539m in FY2020.

JOHNSON MATTHEY (JMAT)   
ORD PRICE:2,130pMARKET VALUE:£ 4.1bn
TOUCH:2,129-2,131p12-MONTH HIGH:3,410pLOW: 1,614p
DIVIDEND YIELD:3.9%PE RATIO:16
NET ASSET VALUE:1,470p*NET DEBT:40%**
Year to 31 MarTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201610.738616671.5
201712.046220175.0
201810.332015580.0
201910.748821585.5
202014.630513255.6
% change+36-38-39-35
Ex-div:18 Jun   
Payment:04 Aug   
*Includes intangible assets of £976m, or 508p per share **Includes lease liabilities of £76m