Fundamental Insights About The Johnson Matthey Plc Stock (JMAT)

  • Feb 20, 2019 GMT
  • Team Kalkine
Fundamental Insights About The Johnson Matthey Plc Stock (JMAT)

Overview 

Johnson Matthey PLC (Ticker Symbol: JMAT) is a British multinational speciality chemicals company. From a single office in London in 1817, in which Percival Norton Johnson set up his gold assaying business, the company has expanded its global presence considerably, operating in more than thirty countries. In 1852, the company was appointed as the official assayers and refiners to the Bank of England; subsequently, the company became a limited company in 1891 and was listed on the London Stock Exchange in 1942. Today, the company is a global leader in sustainable technologies, with 43 major manufacturing sites worldwide. In 2018, the company employed 14,000 colleagues worldwide. The company is headquartered in London, United Kingdom and is a constituent of the FTSE 100 Index.

Management

The Board is Chaired by Patrick Thomas, who was appointed to the Board in June 2018. He is also the Chairman of the Nomination Committee. The current Chief Executive Officer is Robert MacLeod. He was elected to the Board in June 2019 in the capacity of Group Finance Director and was appointed as the Chief Executive in June 2014. The responsibilities of the Chief Financial Officer are held by Anna Manz, who was appointed to the Board in October 2016.

Product and Geographical Segments

The group’s operations are categorized into four segments: Clean Air, Efficient Natural Resources, Health and New Markets.

  • The clean air segment helps to effectively and efficiently reduce emissions from vehicles and other sources.
  • Efficient Natural Resources sector helps customers to achieve greater efficiency and optimal yields in the use of natural resources.
  • Health sector creates complex solutions to improve the efficiency of products and speed up the route to market, getting more effective treatments to the consumer faster.
  • New Markets sector exists to meet the demand for innovation, nurturing the potential future growth areas of the business to find new focuses for innovation and success.

The company’s business is differentiated in four geographical segments: Europe, North America, Asia and Rest of World. Europe is the largest geographic segment for the company.

Key Financial Metrics (H1 FY2019, in £m)

H1(Source: Company Filings)

Key Financial Highlights - H1 FY2019

  • In the first half of the financial year 2019, underlying sales at constant rates grew by 10 per cent to £2,009 million as compared to the last year data.
  • Reported revenue in H1 FY19 increased by 10 per cent to £7,108 million against £6,478 million reported last year.
  • In H1 FY19, underlying operating profit increased by 8 per cent to £271 million and reported operating profit rose to £264 million, up by 19 per cent when compared with last year.
  • Reported EPS rose by 21 per cent, reflecting higher operating profit and a lower tax rate due to change in US tax legislation.
  • Interim dividend increased by 7 per cent to 23.25 pence in the first half of the financial year 2019.
  • Return on invested capital decreased from 16.4 per cent at the end of FY 2018 to 16.0 per cent in 1H 2019.
  • Sales from Clean Air increased by 11 per cent, assisted by double-digit growth in both light and heavy duty; Efficient Natural Resources’ revenue increased by 3 per cent and it reported a healthy operating profit growth; in Health, sales remained stable, but operating profit was lower; and New Markets saw strong sales growth but lower operating profit.

Ratios

(Source: Thomson Reuters)

Ratios Commentary

  • The company’s profitability margins are considerably lower than the industry median, and this might reflect the inefficient use of resources. In 2018, profitability margins further deteriorated as compared to the previous year.
  • The liquidity position of the company is comparatively better than its peers.
  • The company’s leverage position is in line with the industry median and debt burden gradually decreasing from last 2 years.

One Year Share Price Performance

(Source: London Stock Exchange)

Share Price Commentary

  • On 19th February 2019, Johnson Matthey share closed at GBp 3,104.00, down by 0.29 per cent against previous day closing price.
  • Stock's 52 weeks High and Low is GBp 3,873.00/GBp 2,574.00. At the closing price, the stock was trading 19.86 per cent lower than its 52w High and 20.59 per cent higher than its 52w low. In the last one year, the share has fallen by 1.59 per cent.
  • The 5-day average trading volume of the stock was 378,664.80, and 30-Day Average is 455,859.50. The average traded volume for 5 days was down by 16.93 per cent as compared to 30 days average traded volume.
  • On the valuation front, the stock was trading at a trailing twelve months PE multiple of 13.9x as compared to the industry median of 13.1x.
  • The company’s stock beta was 1.47, reflecting relatively high volatility as compared to the benchmark index.
  • Total outstanding market capitalization was around £5.94 billion.

Risks Assessment and Growth Prospects

  • For the year ending 31st March 2019, the company expects growth in operating income at constant rates to be in the upper end of previous guidance of mid to high single-digit growth.
  • At the current exchange rates, favorable currency movements are expected to increase sales and underlying operating profit by £1 million and £2 million respectively.
  • Slowing world economic growth, especially in China, can significantly affect the demand for its product.
  • The company is expected to be favorably impacted by the increasingly tighter emissions regulations, especially sales in Clean air is expected to rise.

Conclusion

Macro-based challenges can be seen ahead of the group because of declining economic growth which can significantly affect demand. Given the current trading levels which indicate the stock movement towards 52-week high with support coming from few growth drivers like tightening emission norms and favorable currency movement, the market can keep a watch on “Johnson Matthey” stock going ahead.

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