In April HERE, I concluded that ‘Johnson Matthey (JMAT) shares are worth buying’. It is positive to see the FTSE 100 name noting that ‘our vision is for a world that's cleaner and healthier, today and for future generations’. That was not to say - however - that profitability was higher in the year to the end of March. Full-year sales were down 5% predominantly due to lower first half ‘Clean Air’ sales declines. Fortunately, aided by a recovering world, this bounced back nicely during the second half of the year.
It also meant that Johnson Matthey generated just over £300 million of free cash flow, equivalent to over 5% of the company’s market cap. This also allowed a dividend payment which means that the shares yield 2.5%. Certainly, owning this stock has been better than holding your money in the bank. Suffice to say however that Johnson Matthey has some strong angles for the 2020s.
The Clean Air business has ‘Also benefited from tighter legislation in China and India’ and ‘Class 8 truck cycle turning and benefits expected in 2021/22’. Otherwise, elsewhere in the business, ‘strength in PGMS trading business from elevated volatility in pgm prices’, ‘health sales growth driven by new product pipeline’ and ‘fuel cells grew strongly to £41 million, up 24%’. Still, the disruption from the COVID-19 impacted world at various points last year means that profitability fell by 8% year-on-year to just over £350 million. But Johnson Matthey remains one of my 2020s period commodity plays. Whilst it clearly has very different exposures to a mining company, it too is benefiting from the combination of the rise-and-rise of the emerging markets combined with a generally changing demand world.
As I noted in the previous article, you can find reasons why Johnson Matthey is seeing ‘growth from decarbonisation of chemical value chains’. You can also note that whilst ‘a net zero world requires circularity of scarce critical materials’, it is great news that the company is a world leader in recycling of scarce PGMs. It is good to see the company’s debt level falling to £775 million at the end of March, meaning that its EV is shy of £7 billion. Based on my £400 million profit forecast, that still puts the company’s EV:ebit multiple around x17 but this remains a smart and level business for the rest of this decade. There is a reason after all why even back in 2018 it traded for a while at £35 a share. That still remains my initial target, making it a clear BUY for me today. Certainly a different angle than the mining stocks, but also a beneficiary of opportunities in this area. On that basis, it is worth having a few.
Filed under: Johnson Matthey, Crowd For Angels, Brickability, Zoetic, gold, Wizz Air
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