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Morningstar | No Surprises in Johnson Matthey’s 1Q Trading Update

Narrow-moat Johnson Matthey provided a trading update for the first quarter, but didn't report any numbers. The company stated that first-quarter sales were in line with expectations and guidance for the year was unchanged. We don’t see anything in the commentary that conflicts with our current view. Consequently, we don’t expect to change our GBX 3,050 fair value estimate, other than to account for the time value of money. At current levels, the shares look overvalued.

Clean air was reported to have had a strong start to the year, particularly in light-duty Europe and Asia, while heavy-duty continued to benefit from high production levels for class 8 trucks in North America. Accordingly, we remain comfortable with our expectations for a mid-single-digit sales increase in the division for the year, although an ongoing strong market in class 8 trucks could lead to some upside in our profit forecast.

Efficient natural resources had good growth in catalyst technologies, particularly methanol catalysts. Restructuring and efficiency initiatives are still expected to begin positively affecting the segment in second-half fiscal 2019. We still expect low-single-digit growth in operating profit for the year, which is broadly in line with guidance.

Health sales were stable, as a decline in the generics business was offset by increased sales in the innovators business. Lower profits are expected in the first half of the year but we see profits turning positive by the end of fiscal 2019.