Johnson Matthey hikes dividend 'only' 5pc as final numbers divide analysts

Johnson Matthey posted solid growth in sales and profits for the year to 31 March, with revenue up 12% and profit before tax up 19%, helped by a big currency benefit - though some analysts and investors felt short changed by the guidance for the new year.

The chemicals group recommended a final dividend per share of 54.5p, that lifted the full year payout to 75p, a 5% annual increase that the company said reflected confidence in its medium term prospects.

While reported revenue for the year to 31 March was up 12% to £12.03bn, a truer figure of underlying sales excluding precious metals rose 13% to £3.58bn and underlying operating profit by 14% to £513.3m. Traders said this was short of expectations.

Underlying profit before tax increased 15% to £481.7m and earnings per share by 17% to 209.1p.

The company's guidance was for profit before tax to be unchanged from the £410.7m the previous year, while the City consensus forecast was for underlying operating profits of £505m and earnings per share of 205p.

As a result of the restructuring programme announced, costs were cut by £26m, while the business produced free cash flow of £230m and spent £265m on capex and £201m on R&D.

"This has been a year of further progress; strengthening our business, implementing our strategy and delivering financial results in line with our expectations," said chief executive Robert MacLeod.

For the new 2017/18 financial year, he expected sales growth at constant currency rates to be broadly in line with the 6% growth delivered in the second half of this year, but reported results should again benefit from the positive impact of translational foreign exchange.

"Improving operating performance at constant rates, with stronger sales growth and further efficiency savings, is expected to be offset as there will be no US post-retirement medical benefit credit and there are higher non cash pension charges in 2017/18."

This will result in a negative £16m tailwind, with £13m contribution from FX but less £12m due to lower pension discount rates and another £17m from US healthcare credits.

Shares in Johnson Matthey fell 2.4% to 3014p in early trading on Thursday.

Analysts at Liberum, however, said PBT and EPS beat expectations by 2% thanks to beats at Emission Control Technologies and Process Technologies but a miss in Fine Chemicals.

They noted that the 6% underlying revenue guidance for the new year is better than the 4-5% the City expected but that the negative £16m included a pension headwind that was not in analyst numbers and so "may prompt small downgrades" of around £10m.

Overall, Liberum was in two minds over the shares, with the p/e ratio low versus history but three structural issues clouding the long term earnings picture: EU diesel car exposure, poor Ecar battery materials positioning, and the growing regulation of US approved opiates.

Investec felt underlying EBITA of £493m was short of consensus of £503m and that underlying EPS 201p missing the 205p City forecast.

"While the numbers broadly in line with underlying growth expected at 6% in the year ahead, however, this will be largely offset by various charges suggestive of an overall flat outlook," analysts wrote.

"We are disappointed to see no special dividend or stronger investment in the Battery Materials business, and whilst the underlying growth outlook for 2018 is a positive, the benefits are set to be undermined."

One positive was that despite the negativity surrounding autocatalysts, this business is performing strongly.

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