EUR 850.00 For Business Accounts Only

Morningstar | Johnson Matthey 2H Results Broadly In Line; Shares Fairly Valued

Narrow-moat Johnson Matthey reported second-half underlying operating profit of GBP 295 million, broadly in line with consensus and slightly better than our expectations. For the full year, underlying operating profit was up 8%, which met company guidance for mid- to high-single-digit growth. For fiscal 2020, Johnson Matthey is guiding for mid- to high-single-digit growth, which is slightly higher than our forecast. We don’t expect to make a material change to our GBX 3,200 fair value estimate. At current levels, the shares look fairly valued.

In the clean air segment, second-half underlying operating profit grew 10% due to market share gains in Europe light-duty vehicles and continued strong production of Class 8 trucks in the U.S. The growth outlook remains positive for the next few years given globally tightening legislation. In the long-term, we expect profits to decline due primarily to falling market share, the shift to gas from diesel in European light-duty vehicles, and increasing penetration of fully electric vehicles in Europe and Asia.

Second-half underlying operating profit increased 6% in the efficient natural resources segment due to solid demand for platinum-group metals services. Licensing remains at low levels but has stabilized. In the medium term, we expect operating profits to grow at a low-single-digit rate, reflecting market growth and some improvement in margins from operational excellence.

In the health segment, second-half underlying operating profit increased significantly, up 20%, due to sales growth in innovators and cost savings from the closure of the manufacturing plant in Riverside, U.S. We are optimistic that profits will begin growing quickly in the next few years given the company’s strong pipeline of generic APIs, which should significantly boost sales and margins.