Shift towards greener cars makes Johnson Matthey a long-term bet

Carphone Warehouse set to profit this year; Worth a look at the nuts and bolts of Umeco

In Europe, 40 per cent of new vehicles sold have diesel engines. And while our Continental cousins are embracing fuel efficiency, the rest of us are also being chivvied along into environmentally friendlier behaviour by increasingly stringent emissions legislation.

So what's all this got to do with the price of cats? Catalytic converters are in increasing demand and Johnson Matthey, which supplies about one-third of the car market with catalysts, has been one of the stock market's biggest success stories of recent years. Now it looks on the verge of making a triumphant return to the FTSE 100 after 18 years.

While JM supplies catalysts for all types of engines, the growth of diesel is boosting group profits in a second way: the company also refines and distributes precious metals and is a specialist in platinum, which is used in catalysts for diesel engines. Although the platinum price took a dive from its peak a year ago – and JM's annual results yesterday consequently showed an 18 per cent fall in turnover – demand is likely to outstrip even the increases in supply that the platinum miners are planning. JM looks to be in a sweet spot.

The group produced a pre-tax profit of £156.7m in the year to March, down from £180.5m. The drop was not in fact down to the weak platinum price, since the precious metals division was able to keep its profit decline to 3 per cent. The disappointment was at the colours and coating unit, which has had to be restructured at a one-off cost of £29.5m as demand from cups and plates manufacturers slumped and operating profits slid 21 per cent.

There was good news from the new pharmaceuticals division, which supplies drug makers with ingredients and has just got a US licence to import raw materials for painkillers codeine and morphine.

The company generates plenty of cash and, while it has shown itself willing to buy back shares, is mainly investing that income in new technologies. One of the most exciting is fuel cells, and JM is working with the three companies, including General Motors, who look likely to dominate fuel cell manufacture. Chris Clark, JM's chief executive, pleaded "not guilty" to having hyped this environmentally friendly new power source during the New Economy boom: "We have always said we expect fuel cells to provide significant revenues by the middle of the decade and significant profits by the end."

Speciality chemicals companies such as JM are usually valued on the basis of their market value plus debt, relative to earnings before interest, tax and accounting write-downs. At a little over 9, this EV/Ebitda ratio is at a historic high, meaning there is no hurry to buy. But, up 45p to 1,145p, they are a worthy long-term investment.

Carphone Warehouse set to profit this year

After a terrible two years on the Stock Exchange, and a tough period for the mobile phone industry, at last Carphone Warehouse has some half-decent news to share. The mobile phone retailer reckons it upped market share in all the countries in which it operates in a year when the handset market slumped by 40 per cent.

Even though it is not really expecting customers to break down its doors this year for third-generation, or 3G, handsets or for phones that will let them send and receive photos, it is upbeat on trading. In May, connections were up 25 per cent to 260,000 and underlying product sales grew 12 per cent.

While the company still has work to do to sort out its German and Belgian operations, it has taken dramatic action, shutting shops and cutting jobs at a cost of £31m.

In the year to 30 March, profits, before the restructuring and other write-downs, were £46.8m, down from £47.4m.

Despite these disappointing numbers, the trends they mask are encouraging. Carphone takes a cut of its customers' monthly payments and insurance premiums and these recurring revenues made up 45 per cent of earnings, compared to 34 per cent in the previous year. Carphone is a much better bet than other retailers precisely because it has this ongoing revenue stream. It has also renegotiated contracts with two phone operators which should give it a greater share of customers' spending.

For all the doom-mongering, there could yet be some pleasant surprises. Management has finally adopted a more conservative approach to forecasting industry trends.

Assuming Hutchison, the fifth mobile operator, launches as planned this autumn, the UK market is set for another big shake-up, with a likely price war stimulating renewed interest and, no doubt, driving customers into Carphone stores.

And all the UK's operators are likely to have launched picture messaging services by Christmas. And there is 3G to look forward to next year.

Credit Suisse First Boston, one of the company's brokers, predicts Carphone will make a £53m profit this year, translating to earnings of 4.54p a share, putting the stock (up 7.5p to 84p) on a forward price-earnings multiple of 19 times. Buy.

Worth a look at the nuts and bolts of Umeco

There was good news and bad news from Umeco, the aerospace contractor. The good news was that is has renegotiated its giant supply contract with Rolls-Royce, the engine manufacturer who accounts for a third of Umeco's sales.

Umeco looks after the little things for Rolls-Royce. It makes sure the company has enough nuts, bolts and rivets for its big engine products. It supplies 85 per cent of the individual parts that make up a typical engine, although they account for just 1 per cent of the cost.

The upshot of yesterday's renegotiation is that Umeco will supply more things, and charge higher fees. It sounds like a good deal. It is also symptomatic of the drive across the aerospace industry to cut costs as demand for new aircraft has slumped.

Which leads us to the bad news. Profits from components and chemicals supply took a dive, holding back group profits to £10.1m, pre-exceptionals and goodwill, for the year to 31 March. That compared with £11.1m last time.

A quick bullet for 35 employees in the UK has kept the group cash generative, while the US business has benefited from higher defence spending.

And there were hints yesterday that, within the year, Umeco will be able to reduce its reliance on Rolls-Royce by signing a big new customer. If that really does come through, then the shares will look dirt cheap at 285p yesterday. Buy.