Johnson Matthey PLC

Johnson Matthey PLC (LON: JMAT) is an FTSE 250 listed multinational Speciality Chemicals Company.

The company will release its FY22 results for the year ending 31 March 2022 on 26 May 2022.

Investment Rationale for Valuation – Hold at GBX 1,886.00

• Trading Update: In its latest trading update on 8 April 2022, the Group reported that expects underlying operating performance to be in line with market expectations in FY22. The growth was supported by improved performance in Clean Air with increased activity in autos.
• Growth in Efficient Natural Resources: The company is expected to report decent operating performance in the segment, driven by PGM Services on the back of higher average precious metal prices.
• Discontinued Operations: The firm has announced the sale of its Health business to Altaris Capital Partners, on 17 December 2021. It expects to close the transaction in mid-2022 and expects a slight operating loss in FY22 from the segment.
• Decent Balance Sheet: The company has maintained a strong balance sheet with net debt to EBITDA expected to be below its target range of 1.5 to 2.0 times as of FY22 end.

Key Risks

• Supply Chain Disruption: The Group's operation has been impacted by a disruption in the supply chain of semi-conductor chips across the industry. This led to an adverse impact on production across the global automotive market.
• Capacity Constraints: The company is also prone to capacity constraints in periods of high demand for its products.

Financial Highlights (for the half year ended 30 September 2021, as of 24 November 2021)

(Source: Company Website)

• Increase in Revenue: The Group reported an increase of 23% in revenue in H1FY22 to £8,586 million, compared to £6,979 million in H1FY21.                     
• Operating Profit: Operating profit dropped to £20 million in H1FY22, from a level of £68 million in H1FY21 reflecting the one-off impairment in Battery Materials during the period.

One Year Share Price Chart

(Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Flow Approach (FY23E)

*Peers: Peers considered are Elementis PLC, Byotrol PLC and Iofina PLC.

*All selected peers are LSE-listed Companies from the Materials sector.

Conclusion

The Group expects the current geopolitical turmoil to accelerate the cause towards a net-zero carbon economy and positions the company well for significant growth opportunities in its sustainable technology portfolio.

Based on the resilient performance during a difficult period, uptick in revenue, long term prospects and support from the valuation as done using the above method, we have given a “Hold” recommendation on Johnson Matthey PLC at the current market price of GBX 1,886.00 (as of 13 April 2022, at 08:55 AM GMT+1).

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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