Johnson Matthey plc Ordinary £1 (JMAT)

Company overview

Johnson Matthey is a speciality 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.  

HL Comment (5 June 2008)

Over recent years, the group’s fortunes have been fairly closely linked to the automobile industry. Environmental pressures on governments around the world to reduce both carbon and other general emissions have seen demand for pollution control systems (catalytic converters) rocket. Worries over such issues as global warming and the rise in the number of children suffering from breathing illnesses such as asthma are pressuring governments into efforts to reduce emissions - such as vehicle exhaust output - and the group’s interests in manufacturing catalytic converters has proved to be very beneficial. In addition, the precious metal platinum is predominantly used in catalytic converters in order to turn carbon monoxide from motor vehicles into less harmful gases, and therefore the group’s refiner and distribution division for precious metals has been extremely helpful.

Recent full year results (05June08) saw underlying pre-tax profits up 16pc to £265.4m, with group revenues jumping by 22pc to £7.49 billion. Progress continued to be driven by the combination of buoyant precious metal prices and solid demand for its car emission control devices. In addition to good news relating to precious metals and pollution control systems, a continued recovery in the group’s pharmaceutical materials division provided further momentum. Looking ahead, management noted that overall, the group should achieve good growth during 2008/09 and that future prospects remain encouraging.

Concerns in relation to the shares focus on the group’s exposure to the volatile US dollar (around one third of the group's earnings are in US dollars) along with the outlook for consumer and corporate demand for new cars and trucks. In addition, with the shares having gained by over 20pc during the last 12 months (as of 05June) valuation concerns have begun to surface in certain quarters. On the positive side of the equation, the outlook statement accompanying the full year results was generally upbeat in tone and continued environmental legislation, along with healthy demand for precious metals continues to drive momentum. On balance, the current market consensus is positive in tone.

All yield figures are variable and not guaranteed.

Fundamental Data

* Prior to 31st March 2005, figures were stated under UK Generally Accepted Accounting Principles (GAAP). Recent figures stated under International Financial Reporting Standards (IFRS).