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Love clean air but don't get precious about Johnson Matthey

By Chris Bailey | Thursday 31 May 2018


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


Back from some half-term jaunts...and it is not the usual Thursday frenzy in the corporate earnings markets. I do note though results from my old mucker Johnson Matthey (JMAT) which I have loved-up in the past, describing it as a 'precious metal refiner and clever catalytic converter technology company'. I also - back in September last year - highlighted the 35 quid share price level as being full. Well that worked alright over the following few months but here we are again back close to that big level. So what do you do?

The good news is that there is no fire at Johnson Matthey. Certainly an expansion in working capital at the precious metals division and some medical/pension costs took the edge off cash flow generation and geek measures like return on capital employed, but the continuing march of environmental legislation in the world meant its recently renamed 'Clean Air' division (catalyst converters and the like) did great. The 7% bump in the dividend helps too (although the stock is no great yielder, 'dividend munchers' should note).

Now who does not love clean air? And part of the change in emerging markets as they move to deeper levels of development is to copy the various bits of legislation progressively adopted by countries like the UK since the great smogs of yesteryear. All of this is great news for a company with a leading market position in this space such as Johnson Matthey but...what happens when the electric car revolution kicks in at the next level or two?

Well it does have a plan. First, not everyone is going to switch to electric cars tomorrow. Second, the history of the company shows it is up for change and evolution. The historic origins in metals refinery remain and will continue to plod along, meanwhile the burgeoning Healthcare division is a welcome diversion into the opportunities open for a clever chemicals and related company servicing the growing generics industry in particular. And finally the company has a natural hedge in its fuel cell business...although as it has been developing this forever I am not going to get too excited.

With a strong balance sheet, unsexy name but clever technology there is a price for this one. You do not need to be a chart genius to note the c.£30-35 trading range it has been in over the last couple of years. I would buy at/below £30 and take profits (if I had any more to take) here. In the meantime, chill and enjoy the cleaner air.


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