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Johnson Matthey JMAT?

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Itsallaguess
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Re: Johnson Matthey JMAT?

#304964

Postby Itsallaguess » May 2nd, 2020, 6:13 am

ReallyVeryFoolish wrote:
Well, Johnson Matthey (JMAT), a high quality company of the type I like. Previously too expensive for me with too low a yield.

Tipped in a number of places prior to Covid19 at prices about 50% over Friday's price - PE <9, historcially low - Well covered (backward looking) yield ~2.5x covered - Previously a low yield stock, now ~4.5% on last years numbers - If they keep paying of course - Excellent environmental products portfolio looking towards the 21st century - Significant technology moat - A quality recovery share? Tempted? (I am, but I have no spare cash to invest unless I sell something).


I've had my eye on JMAT for a while during this pandemic, given the large share-price drop, but I'm currently unsure of a purchase before their full-year results on 28th May are released.

They released a pre-close trading update on the 30th of March that clearly stated that they were being negatively impacted by the Covid pandemic -

Whilst there is significant ongoing uncertainty around the full impact of COVID-19 we are taking steps to manage our costs and cash flow. We have a high quality, resilient and diverse business portfolio; a strong balance sheet and good access to liquidity, and are further strengthening our financial position.

In 2019/20, we have made good strategic progress and were on track to deliver results in line with market expectations this year, prior to developments with COVID-19. The ongoing pandemic has led to a deterioration in some of our end markets and consequently we now expect to deliver group operating performance below market expectations.


https://www.investegate.co.uk/johnson-matthey-plc--jmat-/rns/johnson-matthey-pre-close-trading-statement/202003300700079555H/

Clearly the share price drop of around £30 down to the current £19 takes much of the above uncertainty into consideration, and I'm tempted to take a few nibbles over the coming weeks in anticipation of the 28th May results, but I'm really posting to say that one of the primary reasons for my own initial interest was the current yield of around 4% as well, but that would clearly be based on a legacy dividend that is likely to come under pressure, at least in the short to medium term, so this would be a longer-term yield-play for me, with some real potential for medium and long-term capital growth.

Not that this would put me off at all, and I do like to have a couple of these types of play in my portfolio at any given time, and there's currently a 'spare slot' for just this type of opportunity, which is why JMAT has piqued my interest - it's just that I mention it in passing as I'm currently assuming that the dividend will either be cut completely in the next set of results, or at the very least, it'll be at a much lower level than they've delivered in the recent past..

Cheers,

Itsallaguess

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Re: Johnson Matthey JMAT?

#305192

Postby monabri » May 2nd, 2020, 11:46 pm

With reference to the "growth " tab and the " forecast" section.

https://www.sharecast.com/equity/Johnson_Matthey-13162

The EPS forecast is shown as reducing by 33% over the next couple of years.



I noticed that the free cash flow per share was no longer covering the divi.

http://financials.morningstar.com/ratio ... region=GBR

The reduction in the free cash flow and the forecast drop in EPS might be a consideration.

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Re: Johnson Matthey JMAT?

#305237

Postby simoan » May 3rd, 2020, 9:30 am

Can I ask a basic question? What makes Johnson Matthey a high quality company? Having just skimmed the past 6 years numbers it's not a description I would use. It has relatively poor and declining ROCE, operating margins of 5% or less, terrible free cashflow conversion, has high capital expenditure (so much so that free cashflow was negative last year) and has a not inconsiderable amount of debt (£1.5 billion).

All the best, Si

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Re: Johnson Matthey JMAT?

#305240

Postby simoan » May 3rd, 2020, 9:41 am

ReallyVeryFoolish wrote:
simoan wrote:Can I ask a basic question? What makes Johnson Matthey a high quality company? Having just skimmed the past 6 years numbers it's not a description I would use. It has relatively poor and declining ROCE, operating margins of 5% or less, terrible free cashflow conversion, has high capital expenditure (so much so that free cashflow was negative last year) and has a not inconsiderable amount of debt (£1.5 billion).

All the best, Si

>200 years old, high technology niches such as catalysts, fuel cell, batteries, radio isotope leak detection and many more. All those are very well moated areas. Not everyone will agree on those metrics but I like a company I can understand and I understand this one very well. A dividend cover >2.5 these days is a blessing even if that's set to be challenged short term.

RVF.

What I don't understand is why if it has a good moat, and operates in a niche, that it has such poor returns on capital and such low operating margins? These two things do not add up. A high quality, niche business operating in areas without competition should be doing way better than a 5% operating margin. Does it just have crap management who can't allocate capital properly? BTW I'd ignore the dividend for now!

All the best, Si

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Re: Johnson Matthey JMAT?

#305246

Postby monabri » May 3rd, 2020, 9:56 am

I noticed the negative free cash flow as mentioned by simoan (and debt).

With operating margins of 5% ( some years 4%) it doesn't take much to go wrong and the resultant fall in free cash flow makes paying a dividend/debt more difficult. Of course it might be temporary and the free cash flow has been absorbed in investment in new capital expenditure ( new factory/ equipment).

With regard to operating margins, I thought "good" started at over 15%?

As for the computer saying that the fcast cover is >2 ( therefore all is well, dividend wise) I have learned the hard way that these forecasts are dangerous.

Itsallaguess
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Re: Johnson Matthey JMAT?

#305252

Postby Itsallaguess » May 3rd, 2020, 10:32 am

monabri wrote:
With operating margins of 5% ( some years 4%) it doesn't take much to go wrong and the resultant fall in free cash flow makes paying a dividend/debt more difficult.

Of course it might be temporary and the free cash flow has been absorbed in investment in new capital expenditure ( new factory/ equipment).


I'm not sure that we'd expect to see no issues at all with a company who''s share price has dropped 40% since the start of the year, but like RVF, I'm interested in the markets that it operates in, and I'm looking at it as a recovery play with the potential to provide a useful yield whilst waiting for that to play out.

The results at the end of this month have the potential to influence the short to medium term outcome of that, and that's also one of the reasons that I'm currently interested in it..

Cheers,

Itsallaguess

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Re: Johnson Matthey JMAT?

#305408

Postby Wasron » May 3rd, 2020, 5:11 pm

ReallyVeryFoolish wrote:Well, Johnson Matthey (JMAT), a high quality company of the type I like. Previously too expensive for me with too low a yield.

Tipped in a number of places prior to Covid19 at prices about 50% over Friday's price - PE <9, historcially low - Well covered (backward looking) yield ~2.5x covered - Previously a low yield stock, now ~4.5% on last years numbers - If they keep paying of course - Excellent environmental products portfolio looking towards the 21st century - Significant technology moat - A quality recovery share? Tempted? (I am, but I have no spare cash to invest unless I sell something).

RVF.


I bought in last month. A company I’ve followed for a while, and temporarily at least they’re high yield.

They may suspend the dividend, they may not. I’m looking longer term so don’t mind that much either way.

They feel like a FTSE company that’s properly grasping the climbing change nettle, and as a ‘dividend hero’ (20 years plus of div growth) they also seem to recognise the importance of their shareholders

Wasron

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Re: Johnson Matthey JMAT?

#305641

Postby TheMotorcycleBoy » May 4th, 2020, 5:02 pm

Folks,

I'm indirectly interested in this firm only because by Dad who's 80 yr old, working as a BP exec from about '67-'93, and has a HYP-style foli which he's added and tapped for cash for about the past 35 years. He's now concerned because he's worried about his BP DB pension may suffer if BP get taken over (falling SP, inability to fund divs from real cash etc. etc.). So.... amazingly he asked for a look and Mel and I's foli.

After some consideration (lots of phone calls and emails with me!!), this morning he phoned his broker (he's not that tech savvy), and he's flogging all his BP. and IMB shares, and with the proceeds + residual cash bought about 10k of ULVR and 10k of DGE. Which I thoroughly applauded!

However.... he seems a smitten on spending the remaining 5k on what I think is his way "buying what he thinks he knows about" - i.e. something to do with chemicals. At first he mentioned Victrex (VCT) - I said that that was a cool idea, but don't be too hasty, they've suffered lately what with EU/REACH regulatory changes and the trade wars, spend sometime on some more research. Not to be put off, he's now talking about JMAT, of whom I have very little knowledge.

Being a fundamental analysis geek, I dutifully ran the JMAT ARs 2017-2019 into the spread sheet. Whilst they *don't seem* too bad, they (at least in my arrogant opinion) don't seem to be in the same class as VCT. They seem to spend a bigger chunk of their cash on capex per year, are more indebted, and have lower ROCE. I also keep trying to tell him, that their low PE (compared to VCT) says that the market doesn't like them as much.

But fundamentally what are differences between VCT and JMAT? Is VCT essentially a manufacturer of precision plastic components e.g. valve guide seals, gear cogs, splines, whereas is JMAT a miner?

Can anyone give me some ideas, differences, comparisons etc.? I wish I could spend more time on it, but I'm actually doing a fair bit of WFH - where it's not always been easy communicate with my colleagues remotely, help Dad, micro-manage the teenagers (what with "schools out forever" etc.) so if anyone can give me a heads up that would be great.

many thanks
Matt

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Re: Johnson Matthey JMAT?

#305648

Postby monabri » May 4th, 2020, 5:23 pm

Matt, Wouldn't it be better to stick the 5k in Law Deb (at a higher yield than JMAT) and 2 years divi cover? I assume Dad is looking for income to replace BP divi and to reduce risk of single company bad news?


Ps ...why would his DB pension suffer if BP taken over?

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Re: Johnson Matthey JMAT?

#305653

Postby TheMotorcycleBoy » May 4th, 2020, 5:35 pm

monabri wrote:Matt, Wouldn't it be better to stick the 5k in Law Deb (at a higher yield than JMAT) and 2 years divi cover? I assume Dad is looking for income to replace BP divi and to reduce risk of single company bad news?


Ps ...why would his DB pension suffer if BP taken over?

Yup... there are certainly other ways he could get income. I suggested GSK, I suggested him topping up his LGEN (reckons fullweight here), topping up his TATE, his NG. I'm worried that he's getting rose-tainted bout his days in the Acetyl Division at BP.

re. the DB pension, he thinks if bought by an asset stripper they wouldn't keep the pension going. I don't know what the rules are on that...couldn't advise him.

Im currently reading JMAT's AR19. They seem like they have a big ICE dependency (cat converters, diesels etc) and have acquired assets in health?? and batteries?? and are frantically attempting to diversify into such areas. Correct?

Matt

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Re: Johnson Matthey JMAT?

#305656

Postby tjh290633 » May 4th, 2020, 5:42 pm

TheMotorcycleBoy wrote:But fundamentally what are differences between VCT and JMAT? Is VCT essentially a manufacturer of precision plastic components e.g. valve guide seals, gear cogs, splines, whereas is JMAT a miner?
Matt

Johnson Matthey are fundamentally precious metal refiners and merchants. My work has involved platinum and rhodium in the past, and we had an "account" at J-M (also at Engelhardt) whereby we regularly returned our scrap platinum to them and they refined it, credited to our account, then fabricated new equipment as required.

I don't think they have ever done any mining, but I could be wrong.

TJH

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Re: Johnson Matthey JMAT?

#305659

Postby monabri » May 4th, 2020, 5:44 pm

TheMotorcycleBoy wrote:
monabri wrote:Matt, Wouldn't it be better to stick the 5k in Law Deb (at a higher yield than JMAT) and 2 years divi cover? I assume Dad is looking for income to replace BP divi and to reduce risk of single company bad news?


Ps ...why would his DB pension suffer if BP taken over?

Yup... there are certainly other ways he could get income. I suggested GSK, I suggested him topping up his LGEN (reckons fullweight here), topping up his TATE, his NG. I'm worried that he's getting rose-tainted bout his days in the Acetyl Division at BP.

re. the DB pension, he thinks if bought by an asset stripper they wouldn't keep the pension going. I don't know what the rules are on that...couldn't advise him.

Im currently reading JMAT's AR19. They seem like they have a big ICE dependency (cat converters, diesels etc) and have acquired assets in health?? and batteries?? and are frantically attempting to diversify into such areas. Correct?

Matt


"The level of protection afforded to members is high, regardless of
the level of underfunding in the scheme. Compensation is broadly
paid at 100% of accrued benefits to those over the scheme’s
normal pension age and 90%, subject to a cap, to everyone else."

https://www.gov.uk/government/publicati ... on-schemes

First document ...page 5.

I don't think the NRD for BP is 80... :lol:

Asset strippers can't touch the pension fund, Mr. Maxwell.

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Re: Johnson Matthey JMAT?

#305661

Postby monabri » May 4th, 2020, 5:48 pm

Did Victrex arise out of the ICI chemicals plant that was ( now closed) just outside Cleveleys ( where VCT is located)?

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Re: Johnson Matthey JMAT?

#305667

Postby TheMotorcycleBoy » May 4th, 2020, 6:11 pm

monabri wrote:Did Victrex arise out of the ICI chemicals plant that was ( now closed) just outside Cleveleys ( where VCT is located)?

Bang on!

https://en.wikipedia.org/wiki/Victrex

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Re: Johnson Matthey JMAT?

#305671

Postby TheMotorcycleBoy » May 4th, 2020, 6:25 pm

tjh290633 wrote:
TheMotorcycleBoy wrote:But fundamentally what are differences between VCT and JMAT? Is VCT essentially a manufacturer of precision plastic components e.g. valve guide seals, gear cogs, splines, whereas is JMAT a miner?
Matt

Johnson Matthey are fundamentally precious metal refiners and merchants. My work has involved platinum and rhodium in the past, and we had an "account" at J-M (also at Engelhardt) whereby we regularly returned our scrap platinum to them and they refined it, credited to our account, then fabricated new equipment as required.

I don't think they have ever done any mining, but I could be wrong.

TJH

Thanks TJH,

From the seg. reporting of page 173 of AR2019, they state

1. "clean air" 4,948
2. "efficient natural resources" 5,074
3. "health" 259
4. "new markets" 464

My translation of this being

clean air=catalytic converters (i.e. auto)

efficient nat. resources=oil, gas, refinining

health=I found this on page 20
"Helping to change the lives of
people affected by breast cancer

Unique expertise in the development, scale up and manufacture of
complex molecules is what JM brings to both innovator and generic
pharmaceutical customers in the attractive and growing small
molecule API segment.

And that’s why Immunomedics has chosen JM as its strategic
manufacturing partner for the large scale production of the drug
linker used in IMMU-32. IMMU-32 is Immunomedics’ breakthrough
therapy for metastatic triple negative breast cancer. IMMU-32 is
classified as an antibody drug conjugate (ADC) which means that,
unlike typical chemotherapy, it is intended to target and kill only
cancer cells and spare the body’s healthy cells. This significantly cuts
down on side effects experienced by patients.

JM’s role in getting this breakthrough treatment to patients will
be to manufacture the drug linker used in the IMMU-132 ADC.

Linkers are a critical component of ADCs, providing the bridge for the
antibody to selectively deliver the drug to tumour cells and at tumour
sites. This significantly reduces the amount of the drug that enters the
body, minimising harmful side effects.

Thanks to JM’s early R&D work, we have already improved the
productivity of the manufacturing process over 20-fold and have
provided the necessary quantities of API to treat patients in clinical trials.
JM’s role in getting this breakthrough treatment to patients will
be to manufacture the drug linker used in the IMMU-132 ADC.

The IMMU-132 treatment is at the forefront of new cancer therapies
and with one woman losing the battle against this devastating disease
every single day, JM is excited to be contributing our science and
technology through this partnership."

new markets=I believe this to mean EV batteries

Matt

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Re: Johnson Matthey JMAT?

#305745

Postby monabri » May 5th, 2020, 9:34 am

That would explain the location of VCT.

Victrex was discussed on TLF a while ago. At the time I did not realise that it was HQ'ed at Cleveleys in the North West, near Blackpool. It seemed a strange place to establish a hi tech materials company - on the coast at the end of the M55....a bit of a "cul-de-sac".

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Re: Johnson Matthey JMAT?

#305764

Postby TheMotorcycleBoy » May 5th, 2020, 10:35 am

monabri wrote:That would explain the location of VCT.

Victrex was discussed on TLF a while ago. At the time I did not realise that it was HQ'ed at Cleveleys in the North West, near Blackpool. It seemed a strange place to establish a hi tech materials company - on the coast at the end of the M55....a bit of a "cul-de-sac".

I don't know - I'm sure they find the location quite "illuminating" :lol:

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Re: Johnson Matthey JMAT?

#307176

Postby stockton » May 10th, 2020, 11:05 am

Inspired by this thread I went to the JMAT website to see what they actually do, and the first thing I pulled up was this description of their own business.

https://matthey.com/-/media/files/inves ... tsheet.pdf

The slide suggests that they are expecting "sustained growth" from their motor catalyst business. Could someone explain how this might be achieved ?

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Re: Johnson Matthey JMAT?

#307188

Postby TheMotorcycleBoy » May 10th, 2020, 11:24 am

stockton wrote:Inspired by this thread I went to the JMAT website to see what they actually do, and the first thing I pulled up was this description of their own business.

https://matthey.com/-/media/files/inves ... tsheet.pdf

The slide suggests that they are expecting "sustained growth" from their motor catalyst business. Could someone explain how this might be achieved ?

Personally I think they are doing what's known as "fibbing to the shareholders". When I read their last AR and got a handle on their segmental revenue, I figured it's mainly cats for cars and catalytic substrates/infrastructure for the petro industry. I advised my Dad not to invest in them, but your mileage may vary.

Matt


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