Speciality chemicals firm Johnson Matthey (LSE: JMAT) can look back at 2016 with a certain degree of satisfaction. Despite reporting a £110m drop in pre-tax profits for FY2016, the multinational FTSE 100 firm saw the value of its shares climb from lows of 2,215p in February to a peak of 3,568p in October. But with the share price now 11% lower than the autumn highs, could this be an opportunity to pounce on this ever-expanding global giant?
Solid first half
In its most recent trading update, the company reported a solid first half, supported by favourable currency rates, and an improved performance in health and safety. Sales excluding precious metals were up 5% to £1,676m, with underlying profit before tax also improving 5% to £219.6m. Management also decided to increase the interim dividend by 5% to 20.5p per share reflecting confidence in the group’s medium-term prospects.
A strong performance in Europe and Asia in its Emission Control Technologies division was offset by expected cyclical weakness in North America, with good progress in the Battery Technologies business helping its New Businesses division. But it wasn’t all good news however, with the group’s Fine Chemicals division being held back by an unfavourable product mix in its Active Pharmaceutical Ingredient Manufacturing business.
I think the future continues to look bright for Johnson Matthey with the catalytic converter business particularly well placed to profit from increasing global environmental awareness. The group should also continue to benefit from favourable exchange rates which could have a positive impact to the tune of £65m for the full year ending 31 March.
Market consensus suggests a 14% rise in underlying earnings for the current year, with a further 8% improvement pencilled-in for FY2018. This leaves the shares trading on 16 times forward earnings, falling to 15 times for the year ending March 2018. Despite rising by almost a quarter over the last year, I believe Johnson Matthey continues to offer good value given the promising long-term outlook.
London’s blue chip index is also home to another global speciality chemicals giant in the form of Croda International (LSE: CRDA). The East Yorkshire-based firm produces a wide range of chemicals used in products such as skincare and bodycare, omega-3 oils, and fatty acid amides which add slip to plastic surfaces, so plastic bags can be peeled apart easily.
In its latest trading update the group highlighted the positive effect of the weak pound as a result of 95% of sales being made outside the UK. Croda is expected to surpass £1.3bn in revenues in 2017, together with pre-tax profits of £310m and underlying earnings growth of 8%. The soaring share price reached an all-time high in October on the back of the weakness in sterling but has since fallen back to present a buying opportunity for those looking to profit from long-term earnings growth.
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Bilaal Mohamed 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.