Johnson Matthey PLC – Operating with Robust Financial Position
Johnson Matthey Plc (LON: JMAT) is a British multinational speciality chemicals company. The group’s operations have been organised into four segments: Clean Air, Efficient Natural Resources, Health and New Markets.

On 11^th June 2020, the Company will release its final results for the year ending 31st March 2020. It will also hold its 129th Annual General Meeting (AGM) on 23^rd July 2020.

Recent News
On 1^st June 2020, Johnson Matthey and Dow stated Zibo Qixiang Tengda Chemical Company Limited (China-based company) had selected LP OxoSM Technology, which produces INA (isononyl alcohol) at its new manufacturing facility.

COVID-19 Update (as on 22^nd April 2020)
The Company revealed that they will not reduce their staff count or take any COVID-19 support from the UK government. The Chair (Patrick Thomas), Chief Executive (Robert MacLeod), Chief Financial Officer (Anna Manz) and the Non-Executive Directors have chosen to donate equally 20 per cent of their fees and salaries for at least Q1 FY21 period. This donation will provide support to the JMAT's special fund for science education. Also, donated some PPE (personal protective equipment) to medical and care organisation. The Company has taken effective actions to maintain a robust financial position and tightly manage the costs and cash flow.

Share Price Performance

1-Year Chart as at June-04-2020, before the market close (Source: Refinitiv, Thomson Reuters)

On 4^th June 2020, before the market close (at 8:38 AM GMT+1), Johnson Matthey PLC’s shares were trading at GBX 2,207 and were down by 3.16 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 3,410.00/GBX 1,614.00.

From the technical standpoint, its shares were trading well above its short-term support level of a 20-day and 50-day exponential moving average prices, which reflects an uptrend in the stock.

Valuation Methodology


Valuation Metrics

(Source: LSE)

As on 30th April 2020, the Price/Earnings, EV/EBITDA and Price/Book multiples of the JMAT were 9.3x, 6.2x and 1.5x, respectively and the same multiples were lower as compared with the Chemicals industry. It is reflecting that the company is trading at a lower multiple as compared to its peers.

Conclusion
The Group witnessed that it has been performing well prior to the outbreak and were in-line with the expectations.Led by lower consumer demand and lockdown imposed by the governments, the group has temporarily closed multiple facilities globally, while in the Chinese market, plants are returning to full recovery, which will help the company to meet demand on time. The group does not expect any material impact on Efficient Natural Resources and other business. The group has taken the required steps to reduce its cost and preserve the cash to offset the impact of Covid-19. From the perspective of the Chemical industry, the UK chemical sector is highly diverse, especially with regards to the manufacturing of commodity chemicals, speciality chemicals, polymers (plastics) and consumer chemicals (like personal care and cleaning products).

The recent spurt in prices was so strong that the stock closed above its 21 and 50-day exponential moving averages. The overall chart structure on the weekly and monthly timeframe looks promising to move higher.

Based on the decent prospects and support from the valuation as done using the above method, we have given a “BUY” recommendation at the current price of GBX 2,205 (as on 4^th June 2020, before the market close at 8:10 AM GMT+1), with high single-digit upside potential based on 12.80x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).

Scapa Group PLC – Equity Placing to Withstand Virus Disruption

Scapa Group PLC (LON: SCPA) is a FTSE AIM UK 50 Index listed Company which manufactures adhesive components and bonding products for applications in the healthcare and industrial markets.

On 23^rd June 2020, the Group is expected to release its full years 2020 results.

Recent News
On 14^th May 2020, the Group completed the placing of 30,758,649 shares, wherein Numis and Berenberg acted as Joint Bookrunners.

On 4^th May 2020, the Board of SCPA appointed John Petreanu, as President of Healthcare and Heejae Chae, as President of Industrial, with immediate effect.

COVID-19 Update (as on 27^th March 2020)
In this update, the Company affirmed that underlying trading profit for FY20 is expected to be in line with guidance; however, going forward, the trading would depend on the longevity of COVID-19 outbreak and resultant government restrictions. In order to mitigate the adverse financial impact, the Group has adopted several steps such as cost savings, tight management of operating expenses and capital expenditures. Further, the Group intended to suspend the final dividend. At the time of update, the Group reported a combined liquidity of GBP 40 million. 

Share Price Performance

Daily Chart as on 4^th June 2020, before the market closed (Source: Refinitiv, Thomson Reuters)

Scapa Group PLC’s shares were trading at GBX 111.44 on 4^th June 2020 (before the market close at 8.11 AM GMT+1), up by 1.49% against the last day closing price. Stock's 52 weeks High is GBX 295.00 and Low is GBX 90.00.

From the technical standpoint, its shares were trading above its short-term support level of 20-day simple moving average prices, which reflects an upward trend in the stock and carrying the potential to move up further.

Valuation Metrics
 
(Source: LSE)

As on 30^th April 2020, EV/EBITDA and Price/Book multiples of the Scapa Group PLC were 5.5x and 1.3x, respectively, which were lower as compared with the Chemicals industry. Hence, it is indicating that the Company is trading at a lower multiple against its peers.

Growth Catalysts
The Company has a wide range of portfolio and having global footprints to capture the future demand. In 2018, they had a technology transfer acquisition and five-year supply agreement for wound care products of Systagenix, which is continuously strengthening the Company portfolio.

Conclusion
The financial year 2019 was a transformative year for the Group as it bolstered its market position, expanded the business units, and built a platform for growth prospects. In 2020, Company has reiterated its guidance for the financial year ending 31^st March 2020 and expect underlying trading profit to be in line with expectations despite the impact of COVID-19 pandemic. Its healthcare sites have been assigned “essential business” status in the United States and the United Kingdom. As of 26^th March 2020, almost all sites of the Company were operating. In the long run, the Company seems lucrative to invest with long-term demand for its products and offerings.


(Source: Company Website)

Over the past three years (FY16 to FY19), the Group has delivered a compounding annual growth rate of 8.1 per cent in revenue and 20.4 per cent in EBITDA.
Based on the decent prospects which are supported by valuation done using the above method, we have given a “Speculative Buy” recommendation at the current market price of GBX 107.96 (as on 4^th June 2020, before the market close at 7:52 AM GMT+1).
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters..

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