ii view: Johnson Matthey assesses Covid hit

Its automotive customers are hurting, but should investors be looking through the fog to the future?

Full-year results to 31 March 2020

• Revenue up 36% to £14.6 billion
• Pre-tax profit down 38% to £305 million - Covid hit of £60 million
• Final dividend halved to 31.125p per share
• Net debt up 27% to £1.1 billion

Chief executive Robert MacLeod said:

"Covid-19 has brought unprecedented challenges to the world and Johnson Matthey. During this pandemic, we have tried to balance the needs of all of our stakeholders but our first priority remains the health and safety of our people, customers, suppliers and communities where we operate.

"Given the ongoing uncertainty, we are unable to provide financial guidance for 2020/21. In Clean Air, our customers are gradually ramping up their plants but visibility on the path of recovery remains low. Efficient Natural Resources is later cycle and we anticipate an impact as lower demand begins to affect the industries it serves. Health is relatively unaffected by the macroeconomic environment and should benefit from new customer contracts. In Battery Materials, the commercialisation of eLNO remains on track. 

"These developments do not change the global trends that will drive our longer-term growth. Addressing climate change remains a priority and commitments to net zero are gathering pace across the world. Our continued investment in strategic growth projects and leading sustainable technologies uniquely positions us to address this and other key global trends, delivering significant value for our shareholders and society."

ii round-up:

Employing over 14,000 people, Johnson Matthey (LSE:JMAT), via its Clean Air and Efficient Natural Resources divisions, makes emissions catalysts to reduce air pollution. 

Its products cater for both the car and truck sectors along with heavy industries such as chemicals and oil and gas. It also operates two further divisions. New Markets seeks to use the company’s core scientific basis to innovate and develop new products. Battery Materials and the commercialisation of eLNO, its ultra-high energy density cathode material currently provide its focus. 

Finally, its Health business aids with getting more effective treatments to the consumer faster. 

For a round-up of these latest results, please click here. 

ii view:

Johnson Matthey has built itself into a key global player in the clean air arena. One in every three new cars carries one of its emission control exhaust units. Increasing legislation to improve the environment appears to play into its hands, while its move into battery materials and high energy materials offers scope for growth. 

However, the hit to its automotive customers from Covid-19 has reduced profitability. A further expected later cycle hit from its industrial customers has also been flagged. 

For investors, a 25% plus drop in the share price year-to-date attempts to price in current disruption. Business diversity, the reopening of car plants in China, Europe and the US and exposure to favourable long-term environmental trends offers positives. In addition, the announced cut to the dividend payment is, management hopes, only temporary. But the length of time Covid-19 could disrupt for is unknown, while group debt has risen. For now, while the company’s long-term attractions should not be forgotten, some near-term caution looks sensible. 

Positives: 

• Strong position in the clean air market
• A cost saving and efficiency programme in progress 

Negatives:

• Dividend payment cut
• Net debt increased

The average rating of stock market analysts:

Strong hold