Still plenty of catalysts around to make Johnson Matthey one to buy

More fish in the sea than Brewin Dolphin; Best to cut Vislink shares out of the picture
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The Independent Online

Johnson Matthey, the FTSE 100 speciality chemicals group, "enjoys a close relationship" with AngloPlat, the platinum arm of the giant Anglo American mining empire. Enjoyment isn't really the word for it, and it was made plain yesterday who wore the trousers in the 70-year-old relationship.

Johnson Matthey refines platinum for AngloPlat and also turns the metal into products used in areas as diverse as jewellery and catalytic converters to cut car emissions. New long-term contracts between the pair have cut the commissions and discounts given to Johnson Matthey, which will reduce revenues by £500,000 a month. Not a small sum, and the disappointment is compounded because AngloPlat is about to announce cutbacks in its plans to expand platinum production. For its part, Johnson Matthey's chief executive, Chris Clark, insists there will still be significant extra work coming its way from AngloPlat which will offset the reduction in perks. He professed himself bemused at the share price fall yesterday.

Results met expectations, so there is almost certainly an element of profit-taking after a stonking run. Pre-tax profit was £87.6m in the six months to 30 September, slightly down on last time, mainly because of a big increase in goodwill write-downs associated with the acquisition of Synetix last year. That deal boosted Johnson Matthey's main business, the production of catalysts for important chemical reactions - such as for catalytic converters and also for the chemicals, pharmaceutical and oil and gas industries.

The exploding growth of the Chinese car market (sales this year are up 87 per cent) and an economic recovery in Asia have boosted this key division, and the medium-term progress is certain to be good, as governments impose tighter emissions regulations and Johnson Matthey invests in new products. It also plans to sell its less exciting colours and coatings businesses for an estimated £150m to make acquisitions in catalysts.

And long-term the company is progressing its work on revolutionary fuel cell technology. We said buy the shares in June and still believe this is one to tuck away.

More fish in the sea than Brewin Dolphin

Given the choppy stock markets over the past year, it is little surprise that Brewin Dolphin, the stockbroker, has had a difficult time.

It scraped a profit for the year to September of barely £750,000, down from £6.3m in 2002. In March and April, with stock markets at their lowest and the war in Iraq in full swing, its stockbroking all but stopped. As did corporate finance and investment banking.

Things could have been worse, though, and the company is growing its discretionary funds business. This is where loyal and trusting clients hand over funds to Brewin, which makes all the investment decisions. Brewin can charge high fees for this service. It said yesterday that such funds had grown 17 per cent in the past year, making for a 3 per cent increase in fees.

Markets are also improving, drawing back investors and corporate activity.

But Brewin does still have a cloud hanging over it in the shape of split capital investment trusts. The Financial Services Authority has been investigating the company as part of its inquiry into why many such trusts collapsed. Brewin was broker to a number of them, and last year set aside £2.5m to cover customer complaints. It said yesterday it had used £739,000 of this, mainly on costs. It is confident the affair has been settled, but there is a risk of action by the FSA.

With markets increasingly buoyant, the earnings potential for Brewin has clearly improved. But at 86.5p, up a penny yesterday, it is trading at about 17 times earnings. This is not cheap and Brewin does not have the higher quality earnings of a rival such as Rathbones, which has a better discretionary client bank and whose shares are cheaper. Brewin shares look only fair value for the moment.

Best to cut Vislink shares out of the picture

Perhaps not surprisingly for a group which supplies broadcasting equipment to TV stations, Vislink gets more media coverage than many of its size. It also has an army of followers among the penny-punting, day-trading fraternity. And in Bob Morton, the serial investor, it has a high-profile chairman who isn't likely to stand for this sort of disappointing trading for much longer before taking decisive action. Yesterday's good news on a long-awaited and much-hyped deal to make and supply equipment for the Venezuelan national broadcaster, VTV, was marred by a profit warning.

There has been a further deterioration in sales in the UK, both to defence contractors and broadcasters, with potential deals being pushed into next year, if they are to come at all. The house broker, Investec, which can only muster a "hold" recommendation on Vislink shares, downgraded its estimate of 2003 profit from £2.4m to £1.6m. And that is before a £3.7m charge for scaling down its transmitter work in the UK.

To be fair, Vislink is trading well in the US, where it is winning orders for its microwave technology as a result of broadcasters switching from analogue to digital, and from the government, which is spending on communications equipment to improve homeland security. Both these are finite trends which may already be at their height, and it is difficult to be excited about the company's trading prospects.

The shares have a modest, if not exactly rock bottom, rating of 10 times Investec's current forecast earnings for 2004 but, up 1.5p to 21p, they are not worth chasing.

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