Tip Update: Buy at 3,214p
- Tip style
- VALUE
- Risk rating
- MEDIUM
- Timescale
- LONG TERM
- Our previous tip
- We said BUY at 2779p on 31 Aug 2017
- Tip performance to date
- +16%
Shares in Johnson Matthey (JMAT) pulled back slightly after the self-styled “leader in sustainable technologies” revealed 5 per cent sales growth at constant currencies and reported that profits had been clipped by restructuring and impairment charges of £18.5m. Comparatives also suffered due to a £16m one-off gain at the 2016 half-year relating to changes in US post-employment benefits.
The restructuring charge relates primarily to redundancies and business closures, but the rationalisation of the business won’t come cheap. The full-year charge is estimated to be between £50m and £65m, over half of which will be cash, although that outlay should contribute towards a £25m reduction in annual expenditure – harsh medicine.
In September, the group alerted the market about a working capital outflow due to higher metal prices and lower liquidity, and this has been subsequently confirmed at £156m. Consequently, free cash flow was negative at £90.4m.
Excluding precious metals sales, revenues in the clear air segment were 7 per cent up on the 2016 comparative, driven by double-digit growth of heavy-duty diesel catalysts in every region, suggesting this market is still primed for growth post-'dieselgate'. Nonetheless, Johnson Matthey is forging ahead with the development of its high-energy battery material, enhanced lithium nickel oxide.
JPMorgan Cazenove expects adjusted profit of £494m for the March 2018 year-end, giving EPS of 212p, up from £482m and 209p in FY2017.
JOHNSON MATTHEY (JMAT) | ||||
ORD PRICE: | 3,214p | MARKET VALUE: | £6.22bn | |
TOUCH: | 3,210p-3,215p | 12-MONTH HIGH: | 3,511p | LOW: 2,681p |
DIVIDEND YIELD: | 2.4% | PE RATIO: | 16 | |
NET ASSET VALUE: | 1,165p* | NET DEBT: | 40% |
Half-year to | Turnover | Pre-tax | Earnings per | Dividend |
30 Sep | (£bn) | profit (£m) | share (p) | per share (p) |
2016 | 5.62 | 210 | 92.7 | 20.00 |
2017 | 6.48 | 205 | 87.9 | 21.75 |
% change | +15 | -3 | -5 | +9 |
Ex-div: | 30 Nov | |||
Payment: | 6 Feb | |||
*Includes intangible assets of £886m, or 458p a share |
IC View
The shares are up 16 per cent on our August buy call, but with the shares at a wider price/earnings (PE) discount to peers on an historic basis, we think there’s still value on offer. Buy.
Last IC View: Buy, 2,779p, 31 Aug 2017