Being a constituent of the FTSE 100, many investors give consideration to taking a stake in Johnson Matthey (LSE: JMAT). However, I’m sure a cursory review of the recent price action and revenue figures elicits a giant yawn from most investors.
Back in 2014, the share price was around 3190p… and today it’s also around 3190p! The income in 2014 was £11.15bn and the latest figures for 2019 actually show a fall in revenue to £10.75bn – hardly attention grabbing…
The future promise
As I see it, the fortunes for Johnson Matthey now look set to perk up quite a bit. The cornerstone for this upbeat assessment is a product line known as eLON, which represents a range of state-of-the-art lithium battery materials.
The prospects for the lithium battery sector continues to shine, with demand from companies that produce electric cars, laptops and other high-tech devices expected to soar over the coming decades.
An early signal of a brighter future was given in the most up-to-date annual report. Robert MacLeod, Chief Executive, reported a more-than-healthy increase of 17% in its “New Markets” segment, which includes eLON.
Also encouraging was the recent five-year agreement with Lithium Werks, a leading battery producer, to supply the eLON range for the next generation of Lithium Werks’ products. To give some idea of the scale of the opportunity, this relatively new private company has supplied in excess of 200 million batteries to more than 200 customers since its inception in 2017.
There is another segment of Johnson Matthey’s business showing continuing signs of an uptick in revenue. For its world-beating clean air catalytic converters, there was a rise of 11% in revenues. This despite a decline in automobile production, which surely highlights JMAT’s market-leading position.
A spur for further growth of the converter business comes in the form of clean air legislation to be enforced in China and India in the very near future. In advance of the legislation, Johnson Matthey is investing for growth by building production facilities locally in order to satisfy the impending demand.
Bargain territory
Given the potential for an improvement in both revenue and profits, the price-to-earnings ratio is a mere 13.1 – certainly not overvalued!
Also noteworthy is the fact that although there has been a rather lacklustre performance on the revenue front, investors have been treated to a consistently rising dividend. From 72.2p a share in 2014, the dividend is now 85.5p, representing an average increase in the dividend of around 3.7% a year. The present dividend, at the current share price, represents a yield of 2.8%.
In short
Johnson Matthey is on the threshold of a marked improvement in earnings and, right now, the price of its shares is not excessive. If Johnson Matthey interests you, it’s not the only British industrial set for growth in the near future.