Johnson Matthey: Chemicals and Catalysts

12/03/2015 10:00 am EST

Focus: STOCKS

Vivian Lewis

Editor and Publisher, Global Investing

Our latest global recommendation is a key player in air cleanup, energy security, and even healthcare, notes Vivian Lewis, editor of Global Investing.

We are buying Johnson Matthey (JMPLY), a British stock that is a likely beneficiary of the Volkswagen (VLKAY) crisis.

One of its major businesses is vehicle emission control technology particularly for diesel engines. It sells its systems for exhaust cleaning worldwide, to Europe, the US, and increasingly to Asia for light trucks.

JMPLY just reported first half revenues up 20% to £5.755 billion (up 18% at constant currencies) both excluding precious metal sales whose prices have collapsed. The first half ran to the end of September.

The report was KPMG-audited with warnings. JMPLY sold its gold and silver refineries in the half. Earnings per share were down 4% to 137.9 helped by the sale of its research chemicals arm.

Profit before taxes came in at £208.3 million, also down 4% Leaving out its precious metals side, now partly spun-off, JMPLY has not suffered much from the serious drop in platinum, palladium, gold, and silver prices this year as I had anticipated.

Overall, JMPLY profits were a healthy 12.7% of sales but down from the prior year 17.6%.

The company also supplies fine chemicals, catalysts, and active pharmaceutical and biochemical ingredients for drugmakers.

It also recently signed a deal to buy Nemaska Lithium of Canada to gain access to lithium salts for making fuel cells.

Other new lines include atmosphere control technologies expected to produce profits next year. Indicators of reform include a whole new business side in advanced glass technologies, beyond emissions control.

There is also a £30 million cost-cutting initiative to be completed by year-end, mostly in the process technologies side.

JMPLY is a venerable company and it is clearly upbeat about next year. CEO Robert MacLeod expects the second half to be as good as the first half and a return to growth in fiscal year 2016-17.

To show confidence, the company just declared a special dividend of 150 pence per share in addition to the 19.5 pence ordinary dividend. I recommend buying under $85 a share.

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