Is Small-Cap GTS Chemical PLC Hldg A Better Buy Than Blue-Chip Johnson Matthey PLC?

Which is the better investment: GTS Chemical PLC Hldg (LON:GTS) or Johnson Matthey PLC (LON:JMAT)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

There aren’t too many chemicals companies on the London market. At the large-cap end, we have FTSE 100 group Johnson Matthey (LSE: JMAT), whose shares are trading at 2,400p, valuing the business at £4.6bn. At the small-cap end, there is AIM-listed GTS Chemical (LSE: GTS), whose shares have risen 11% to 68.5p on a trading update today, valuing the business at £70m.

Should investors go for the boring blue chip or the potentially sexier small cap?

Johnson Matthey

Speciality chemicals group Johnson Matthey has several divisions. All revolve around platinum, the largest being Emission Control Technologies (catalytic convertors and so on). The group has operations in over 30 countries and employs 13,000 people.

Johnson Matthey recently disposed of two businesses, and returned a big chunk of cash to shareholders. Management is focusing on high value added, high technology products and services “where we can apply our expertise in complex chemistry to create long term value for our shareholders”.

For the six months ended 30 September, a slowdown in upstream oil and gas markets significantly impacted on Johnson Matthey’s diagnostic services business, while a decline in platinum metals group prices badly hurt its refining and recycling business.

Nevertheless, as a result of strong performances elsewhere in the diversified company, group profit declined only a modest a 3%. Management expects a return to growth in its 2015/16 fiscal year, and forecasts put the company on an attractive-looking price-to-earnings (P/E) ratio of 12.5, with a dividend yield of 3.3%.

Johnson Matthey looks a decent buy at current levels, but could GTS Chemical provide investors with even brighter prospects?

GTS Chemical

In a trading update this morning for the year ended 31 December, GTS Chemical posted some impressive numbers. Revenue was up 32%, and the company said it had maintained its gross margin. The company delivered an impressive first-half net profit increase of 34%, and today’s revenue growth and margin news bodes well for full-year profit.

House broker earnings and dividend forecasts put GTS on a bargain-basement P/E of just 5.9, with a yield of 2.8%, but I have to say I have serious reservations about the company.

GTS is a People’s Republic of China business, which joined AIM as a Jersey-incorporated holding company. In recent years, we’ve seen a large number of such companies delist or be kicked off the market, leaving shareholders wiped out. Reasons have ranged from failures to produce accounts, resignations of UK non-executive directors and advisors, cash disappearing in bizarre circumstances, and so on.

GTS was brought to AIM with the help of reporting accountants and auditors UHY Hacker Young. China companies with which Hacker Young has been associated have an abysmal track record.

Now, perhaps investors in GTS will fare better than those in Hacker Young’s many previous People’s Republic clients, including China Rerun, which was booted off AIM last year after its nominated advisor and a UK non-exec resigned when the company failed to submit to an independent review of its financial reporting “systems and controls”.

Unfortunately, so many AIM China companies have turned out to be black holes for investors’ cash that it’s reached the stage where this sub-sector of the market appears of such high risk as to be more or less uninvestable. As such, Johnson Matthey would be my preferred choice, if I were looking to buy shares in a chemicals company.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

A brilliantly reliable FTSE 100 share I plan to never sell!

This FTSE-quoted share has raised dividends for more than 30 years on the spin! Here's why I plan to hold…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

This 7.7% yielding FTSE 250 stock is up 24% in a year! Have I missed the boat?

When a stock surges, sometimes it can be too late to buy shares and capitalise. Is that the case with…

Read more »

Investing Articles

£13,200 invested in this defensive stock bags me £1K of passive income!

Building a passive income stream is possible and this Fool breaks down one investment in a single stock that could…

Read more »

Investing Articles

I think the Rolls-Royce dividend is coming back – but when?

The Rolls-Royce dividend disappeared in 2020 and has not come back. But with the company performance improving, might it reappear?

Read more »

British Pennies on a Pound Note
Investing Articles

Should I snap up this penny share in March?

Our writer is considering penny shares to buy for his portfolio next month. Does this mining company merit a place…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Stock market bubble – or start of a bull run?

Christopher Ruane considers whether the surging NVIDIA share price could be symptomatic of a wider stock market bubble forming.

Read more »

Investing Articles

Buying 8,254 Aviva shares in an empty ISA would give me a £1,370 income in year one

Harvey Jones is tempted to add Aviva shares to his Stocks and Shares ISA this year. Today’s 7.37% yield isn't…

Read more »

Investing Articles

Is the tide turning for bank shares?

Bank shares are trading on stubbornly cheap-looking valuations yet business performance in the sector is broadly robust. Should our writer…

Read more »