Investment Column: Johnson Matthey has formula for growth

Headlam; Craneware


Our view: Buy

Share price: 2,016p (+78p)

Johnson Matthey's investors have become accustomed to the company making all the right noises when it updates the market. And yesterday it did not disappoint.

The speciality chemicals operation, which refines platinum and is the world's biggest maker of catalytic converters, has enjoyed a buoyant start to its financial year – sales (excluding precious metals) motored ahead by 12 per cent to £617m while underlying profit before tax jumped by 19 per cent to £98.2m.

The group's precious metal products division has been reaping the rewards unlocked by high metal prices. But it should be noted that demand for its products has also proved strong.

Then there are those converters: the key environmental technologies division (which makes them) posted a 14 per cent rise in sales along with a "similar" improvement in operating profit. Light-duty catalysts had a tough time of it – no surprise given the disruption to the car industry caused by the unfortunate Japanese earthquake and tsunami.

And not all metal price rises help the group, such as the rise in the cost of the rare earth resources used in the catalysts. But the shortfall was more than made up for by a rise in demand for heavy-duty diesel catalysts.

What we particularly liked about yesterday's statement was the group's confidence that the first-quarter performance will continue through the rest of the year – and this has been a company that usually delivers on such predictions.

Turning to the share price, we bought at 1,877p in November 2010, having been long-term supporters of the business, which has delivered for us. That said, the shares are no bargain – they trade at 14 times forecast full-year earnings, against a sector average of about 11 times.

However, Johnson Matthey is well positioned in good markets and yesterday's statement was notably more upbeat than some rivals'. It's a tough call, but on balance, we'd keep buying.

Headlam

Our view: Buy

Share price: 285p (+9.75p)

Headlam, the European floor-covering distributor, has, like the retailer United Carpets, bucked the downturn in the carpet market by rolling out stellar figures for the first half of the year.

While some, including the UK market leader, Carpetright, have struggled recently, Birmingham-based Headlam has powered ahead and delivered group revenues up by 5.5 per cent for the six months to 30 June.

Analysts at Peel Hunt said the result was "excellent" in what the distributor's management called a "flat" market, particularly in the UK, where its like-for-like sales surged by 7.4 per cent.

While Headlam is benefiting from not having shops on the high street, the company deserves praise for maximising its relationships with retailers and contractors through the 47 brands it sells to them.

That said, like-for-like sales on the Continent rose by a less stellar 4.5 per cent over the half-year. However, we note that analysts raised their profit forecasts after yesterday's update and that the shares were as high as 354p as recently as January. It's also worth noting that Headlam trades on what is a relatively modest forward-earnings multiple of 11.6 times.

Craneware

Our view: Buy

Share price: 575p (+8.75p)

Craneware is a bit of an oddity in that it is based up in Edinburgh but sells only to customers on the other side of the Atlantic.

The company describes itself as the "market leader in automated revenue integrity solutions for the US healthcare market". Translated, this means Craneware has developed systems to help hospitals to bill their customers more effectively.

It said yesterday that revenue for the year to the end of June was expected to meet growth forecasts of 34 per cent to $28.4m. Adjusted profits are expected to come in at about $7.6m as management said its ClaimTrust acquisition had started to contribute.

The group hailed the signing of two contracts to hospital groups this year, with the majority of the revenues recognised in future years. These helped to contribute to the company positively revising its revenue "visibility" for the next three years.

Although it trades on a punchy valuation of 36 times forward earnings, falling to 25 on the estimates for next year, Craneware boasts an enviable momentum, which should underpin the share price.

Start your day with The Independent, sign up for daily news emails
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Day In a Page

Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

The 161-page dossier that exposes Fifa's dark heart

How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

Exclusive interview with Tripoli PM Khalifa al-Ghweil

'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

Raymond Chandler's Los Angeles

How the author foretold the Californian water crisis
Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

Art attack

Chinese artist who posted funny image of President Xi Jinping facing five years in prison
Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

Cher is the new face of Marc Jacobs

Alexander Fury explains why designers are turning to august stars to front their lines
Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

'I'm climbing Ben Nevis for my daughter'

Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
10 best wedding gift ideas

It's that time of year again... 10 best wedding gift ideas

Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
Paul Scholes column: With the Premier League over for another year, here are my end of season awards

Paul Scholes column

With the Premier League over for another year, here are my end of season awards
Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

Liverpool have seen too much tragedy to forget Heysel

Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

Khan’s audition for Mayweather may turn into a no-win situation

The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor