Johnson Matthey PLC

Johnson Matthey PLC (JMAT) is a British multinational speciality chemicals company. The company offers fuel cell technologies, battery materials for automotive applications, and battery systems for a range of applications. The group’s operations have been organised into four segments: Clean Air, Efficient Natural Resources, Health and New Markets.

On 21st November 2019, the company will announce the interim results of the financial year 2020.

Trading Update (as on 17th July 2019)
The company said that the first-quarter sales had been flatand left guidance unchanged but cautioned that its Clean Air division would disappoint because of short-term costs tied to a Polish factory and logistics supporting sales growth in Europe.

The full-year operating profit growth would be skewed towards the second half of the year.In London, the company will hold a Capital Markets Day on 19th September 2019.

Financial Highlights (for the year ended 31^st March 2019, £million)

(Source: Annual Report, Company Website)

The company’s reported revenue stood at £10,745 million for the fiscal year ended March 2019, an increase of 5 per cent against the £10,274 million in FY2018. On an underlying basis, sales (excluding precious metals) grew by 10 per cent in FY19 to £4,214 million from £3,846 million in FY18. Reported pre-tax profit increased to £488 million against £320 million reported a year-ago period. Reported earnings per share surged by 38.7 per cent to 215.2 pence per share. In FY19, the group’s free cash flow was an outflow of £13 million, primarily because of platinum group metal refinery downtime, which has increased precious metal working capital and higher capex. During the year under assessment, return on invested capital (excluding net pension fund assets) declined to 16.4 per cent from 17 per cent recorded in the FY18, primarily because of increased precious metal working capital. The board of the company recommended an ordinary dividend per share of 85.5 pence against 80.0 pence recorded in FY18.

Share Price Performance

Daily Chart as at November-04-19, before the market closed (Source: Thomson Reuters)

On 4^th November 2019, Johnson Matthey PLC shares were trading at GBX 3,187 at the time of writing before the market close (at 12:43 PM GMT), up by 0.473% against the previous day closing price. Stock's 52 weeks High and Low are GBX 3,475/GBX 2,574. The company's stock beta was 1.49, reflecting the higher volatility as compared to the benchmark index.

Conclusion
The company anticipates a year of more modest growth in the financial year 2020, weighted to the H1 FY2020 as they realise the benefit of annualised share gains, partially offset by reinvestment into Research & Development (R&D), the ERP (enterprise resource planning) system and new manufacturing capacity. The company expect that these investments for progress and effectiveness will lead to a slightly low margin against the financial year 2019. Beyond FY2020, the company anticipates operating profit and sales growth to be increased due to the introduction of new legislation in India and China. The company has a strong portfolio of products and technologies. In the environmental industry, the group's products and technologies are used to control emissions from vehicles and factories, remove unwanted impurities in oil refining processes and produce chemicals from sustainable feedstocks. Such contracts will increase the reach and expertise of the company, thus helping it to increase its revenue in the future. At current foreign exchange rates, translational foreign exchange movements for the financial year 2020 are anticipated to benefit underlying operating profit by £12 million and sales by £75 million.

For the medium-term guidance, the company anticipates progress in operating performance at constant rates basis and will be at mid to high single-digit growth.In terms of phasing, the company anticipates performance to be more heavily weighted during the second half.

Based on the above factors, we have given a “Hold” recommendation at the closing price of GBX 3,172 (as on 1^st November 2019).

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