Why Johnson Matthey plc is set to be a millionaire-maker stock
Speciality chemical and sustainable technologies giant Johnson Matthey(LSE: JMAT) today released results for its half year ended 30 September. It headlined the announcement: "Strong operational momentum continued and full-year outlook confirmed," but the shares are trading a couple of percent lower at around 3,200p.
The company posted a 15% rise in reported revenue to £6.5bn, driven by higher platinum-group metals (PGM) prices and a £179m foreign exchange (FX) benefit. Excluding PGM and at constant FX rates, sales were up 5%.
A strong performance from the company's Clean Air division (around two-thirds of group revenue) was led by double-digit growth of Heavy Duty Diesel catalysts in every region. And it saw growth in the Efficient Natural Resources and Health businesses. Only the relatively small New Markets division failed to contribute, with sales being little changed from the same period last year.
With its technology leadership, Johnson Matthey's Clean Air business is set to benefit from tighter legislation across the world, particularly in China and Europe. Add in its growing pipeline in Health and targeted investment in Efficient Natural Resources and there is a compelling proposition for investors.
Chief executive Robert MacLeod said today: "We are building a stronger platform from which we will achieve our goal of attractive returns to shareholders over the medium term: mid-to-high single-digit earnings per share growth, expanding return on invested capital to 20% and a progressive dividend."
A current-year forecast price-to-earnings (P/E) ratio of 15.5 and a prospective dividend yield of 2.5% strike me as attractive for the medium-term growth outlook. But there's also huge potential in the New Markets division, notably in the company's development of the world's first cobalt-free battery. This could be a major kicker -- a game-changer even -- for long-term earnings and dividend growth. As such, I rate the stock a 'buy'.
Also in the industrial chemicals sector, FTSE SmallCap firm Zotefoams(LSE: ZTF) is a company that's caught the eye this year, with its shares having risen by as much as 58%. The business rightly deserves investor attention, in my view. It uses a unique manufacturing process of environmentally friendly nitrogen expansion to produce a range of foams -- including lightweight, high-performance and advanced insulation -- which it sells into diverse markets worldwide.
A Q3 trading update earlier this month, in which management advised that full-year revenue is expected to be ahead of market expectation and profit at the top end of the range, is indicative of the strong demand for the Croydon-based firm's products and its increasing penetration of international markets.
At 375p, the shares have eased back from their post-trading-update high of near to 400p. The current-year forecast P/E is still relatively high at 24 but it falls to 21 next year and I see the long-term growth prospects as highly appealing. I also expect the current modest dividend (the yield is 1.6%) to advance strongly with earnings growth in the coming years and this is another stock I also rate a 'buy'.
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G A Chester has no position in any of the shares mentioned. TThe Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.