Johnson Matthey shares dip with profit before tax plunging 88%

FTSE 100 listed chemicals and tech company, Johnson Matthey (LON:JMAT), watched its share price shed 5% on Thursday, as the company saw its bottom line contract significantly during the recent half-year of trading.

The company reported that sales fell by 20%, driven by reduced demand for its Clean Air, Efficient Natural Resources and New Markets offerings. Despite this, reported revenues rose by 2%, led by increases in average previous metals prices.

Following the trend of painful fundamentals, its reported operating profits contracted by 74%, from £259 million to £68 million. Similarly, profit before tax dropped by more than 88% year-on-year, following ‘major’ impairment and restructuring charges of £78 million.

In terms of its balance sheet, Johnson Matthey reported cash flow of £482 million, while its net debt to EBITDA ratio stood at 1.6 and its return on invested capital fell to 10.6%, pushed by lower operating profit.

The situation was equally rough for the company’s shareholders, with reported EPS falling 87%, to 12.3p, and the interim dividend per share sliding 18% to 20.0p, due to reduced profits and higher net finance charges.

Responding to the challenges pandemic trading environment, and looking to the future, Chief Executive, Robert MacLeod said: “ It has been a challenging period but the steps we have taken in recent years to create a more simple, agile and efficient business, coupled with the dedication of all my colleagues across the whole of Johnson Matthey, have enabled us to navigate it well. I am pleased that we delivered operating performance ahead of market expectations, as well as good cash generation, and made further progress on transforming the group.”

“[…] I am excited by our medium term growth prospects driven by accelerating global trends and we are purpose led to reduce the impact of climate change. We are investing for our future and remain focused on executing our growth opportunities including battery materials, fuel cells and our hydrogen production technologies.”

Following the stinging trading update, Johnson Matthey shares fell by 4.59%, to 2,433.00p a share 19/11/20. This price is below its post-lockdown high of 2,654.00p a share, but fairly consistent with its going rate over the last six months.

Analysts currently have a consensus ‘Hold’ stance on the stock and a target price of 2,555p – which is roughly where it began the day. It’s p/e ratio of 18.40, which looks like good value versus the basic materials sector average of 26.81. The Marketbeat community currently has a 53.32% “underperform” stance on the stock.