Friday newspaper share tips: Johnson Matthey needs diesel to be a growth story

Johnson Matthey was in the sights of the Financial Times’ Lex on Friday after it released its half year results.

Underlying revenue at the specialty chemicals firm was up 20% on the previous period, to £5.755bn, with sales up 5% to £1.588bn. The company’s underlying profit before tax, however, was down 4% to £2.083bn.

Lex noted that earnings were hit by the FTSE 100 company’s exit from gold-refining as well as its partial exposure to the oil market and Chinese industrial spirits. But the positive results meant that the company could increase its special dividend, and also keep better control on its working capital.

However, the investmnent column said the Volkswagen emissions scandal has added to the already complex story.

“Because the diesel engines arte so dirty, the converters they need cost five times the petrol equivalent. Should car buyers reject diesel en masse, Johnson Matthey would be badly exposed.”

Even so, it did add that with the move from lab emissions testing to road emissions testing as well as cleaner emissions being required from petrol cars, demand for its more pricey catalytic converters would increase.

“As converters become costlier, buyers might shift to hybrid or electric card. Johnson Matthey has a battery materials business, an admission of the need to spread its automobile bets.”

Lex explained it stills needs diesel to become more of a growth story, with the battery materials business only accounting for five percent of sales.

Meanwhile, over in The Telegraph, Questor is looking at the possibility of selling discount retailer Poundland before the shares get too cheap.

The company took a pounding on the market yesterday after underlying half year results for the period ended 27 September were largely disappointing, with like-for-like sales down 2.8% and EBITDA down 18.5% to £16.5m. Pre-tax profits were down a sizeable 26.3% to £9.3m.

With the dismal set of results, Questor is questioning its ‘buy’ recommendation from June, especially with its acquisition of rival 99p Stores.

“Expansion, however, has a nasty habit of destroying value if it is pursued at the expense of profits. That is the problem with Poundland.”

Questor said the main problem was the like-for-like sales drop, with a warning that trading was “highly volatile” during the third quarter just as the Christmas season gets underway. Add to that the ongoing concern about how much paying the living wage will cost them from next year, and the newspaper pundit is going back on its earlier advice and recommending traders sell.

“We thought they looked good value earlier in the year but until management can deliver a stable set of results we have to cut our losses.”