Johnson Matthey profit driven by tighter emission controls

The world's biggest supplier of catalytic converters is set to report soaring annual profits and dividend next week, as a result of a recovery in Japanese demand and increased truck production in the US.

Johnson Matthey is set to announce a 60 per cent profit increase on Thursday, as its dominant share of the rapidly emerging market for controlling heavy duty diesel emissions (HDD) starts to reap rewards, according to Liberum Capital analyst Adam Collins.

The dividend for the year is likely to rise by 8p, or 17 per cent, to 54p, said Numis Securities' analyst Charles Pick. He forecasts a group pre-tax profit of £415m for 2011, up from £259.3m the year before, as revenues increase by 14 per cent to £2.7bn.

The FTSE 100 group, which has a third share of the global market for catalytic converters, controls 60 per cent of the more specialised HDD market. This market is forecast to grow from $900m this year to $2.5bn (£1.62bn) in 2015, as regulations surrounding emissions, which mainly apply to trucks in the US and Europe, are tightened up to include trucks in the developing world and tractors, mining and construction equipment in the West.

Mr Collins forecasts that HDD-related profits hit £40m – or a 10th of the group total – last year, compared to £11m in 2010 and a £5m loss the year before. His figures are estimates because Johnson Matthey doesn't break out its HDD figures.

As Johnson Matthey's chief executive, Neil Carson, unveils his group's results, investors will be hoping for guidance on the broader economic outlook – key to vehicle, and thus catalytic converter, demand.

Some may also be hoping for an announcement that Johnson Matthey plans a share buyback. However, most analysts expect no buyback for a couple of years.