Once again, we see a huge mis-match between how a company presents its results and how the market views them.
Cleaning up
FTSE 100global science and chemicals company Johnson Matthey (LSE: JMAT) prefaced todays preliminaries for the year to 31 March with CEO Robert MacLeod hailing another good year with strong sales and operating profit growth.But markets failed to share his enthusiasm, with the share price down more than 5% at the time of writing.
You ungrateful lot. What do you want? As ever, it comes down to expectations.JMAT posted a 5% rise in revenues to 10.75bn, coupled with a whopping 53% rise in profit before tax to 488m. Earnings per share rose 39% to 215.2p, while the dividend was hiked 7% to 85.5p.
Steady as she goes
I suspect investors were underwhelmed by growth forecasts, which look modest in 2019/20 and weighted to the first half. McLeod expects2019/20 operating performance growth to be within its medium term guidance of mid to high single digit growth. Or maybe investors are struggling to get worked up given that the Johnson Matthey share price has gone nowhere fast since 2014.
Today, the business posted a small dip in return on invested capital (ROIC), from 17% to 16.4%, mainly due to higher precious metal working capital. However, its balance sheet looks strong with net debt of 866m, giving net debt to EBITDA of 1.3 times.
Electric outlook
Johnson Matthey specialises in sustainable technologies and its clean air division, whose catalytic converters appear in a third of the worlds cars, has been boosted by tighter regulation in Europe and China. It should also benefit from the expanding market for electric vehicles.
However, new tech can be a double-edged sword, as rising electric car sales could boostdemand for its higher energy density battery materials while simultaneously hitting catalytic converter sales.
The 5.8bn group trades at just 12.1 times forward earnings. Its forecast yield is just 2.8%, but we have seen today that management policy is progressive, and cover healthy at 2.7. The dividend hasnt been cut for 26 years and my fellow contributorRoland Head says this is a stock he would buy and hold forever.
Finding its way
Compass Group (LSE: CPG) is another FTSE 100 stock thats easy to overlook, even though its share price has grown 76% over the last five years against just 12% across the index as a whole.
The food, hospitality and support services recently posted a 6.6% rise in underlying revenues to 12.5bn. Operating profits were squeezed by increased cost pressures in Europe, but still climbed 5.8% to 951m.
Nicholas Hyett at Hargreaves Lansdown recently described Compass as a brilliantly boring business,while our very own Peter Stephens says it offers resilience and dependable income growth, and anticipates impressive long-term total returns.
Compass has a hefty market-cap of 28.5bn. But, unfortunately, it isnt cheap at the moment, trading at 21 times forecast earnings. Some might see that as reassuringly expensive.
The yield is also low at just 2% with cover of 2.1 although, again, management is generous and as it has hiked it every year since 2001. Earlier this month, it lifted the interim dividend 6.5% to 13.1p per share. Perhaps its a little too boring though.
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