Investment Column: Engines of growth at Johnson Matthey keep investors happy

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The Independent Online
IT MAY be pointless reinventing the wheel, but reinventing the internal combustion engine has more potential. Johnson Matthey, the catalytic converters to drugs group, has partners helping develop "fuel cell technology" to make cars more green. Commercialisation is at least four years away, but there's plenty elsewhere in Johnson to keep investors happy in the meantime.

Johnson is a year on from the launch of a review that saw it sell its electronics arm. Thathelped add a pounds 29m exceptional gain to pre-tax profits in the half year. As a speciality chemicals group the group remains fragmented, but that's no worry.

Strong demand for catalytic converters helped the chemicals and catalysts side grow sales by 14 per cent in the half year, although profits growth lagged slightly in the wake of higher raw material prices.

Asian recovery and strong demand in the US and China for white-metal jewellery helped the precious metals business grow sales 10 per cent. Stronger metals prices saw profits jump 20 per cent.

Pharmaceuticals suffered flat sales as competition in the hyperactivity treatment market was fierce. Still, the group has a range of new products to add to its existing range.

Less exciting is the colours and coatings business, which provides materials for the tableware of Royal Doulton and Waterford. Sales are down, although a restructuring boosted profits. Johnson is taking the knife to costs once more, cutting 200 in the UK as it shifts production to Spain.

With about pounds 140m cash on the balance sheet, the group has firepower of pounds 500m to make acquisitions in the catalytic converter business. On analysts' expectations of pounds 133m pre-tax profits and 45p earnings per share, Johnson, up 17p at 684p, trades on a forward price/earnings multiple of 15. That's good value.

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