PREVIEW: Mixed bag expected from Johnson Matthey

Liberum expects the company to guide to higher profits for its light duty vehicle catalyst and fine chemicals divisions, but to strike a note of caution on the heavy duty diesel catalyst arm.

The VW emissions scandal should prove a boon to Johnson Mathey's emissions control business

Johnson Matthey PLC (LON:JMAT) is calling itself a global leader in sustainable technologies these days.

Most people know it for its Emissions Control Technologies division – catalytic converters to thee and me – which remains the main money earner for the group.

The company is expected to announce full-year profit before tax (PBT) of around £415mln.

Liberum Capital Markets expects the company to guide to higher profits for its light duty vehicle catalyst and fine chemicals divisions, but to strike a note of caution on the heavy duty diesel catalyst arm.

“The bulk of restructuring savings are expected to fall on Process Technologies and Precious Metals Products though trading at both remains subdued,” Liberum noted.

The broker expects management to say it is comfortable with market expectations for the coming year.

“Right now, consensus anticipates £20mln higher underlying PBT in the coming year and this is pretty much similar to the anticipated non-trading tailwinds we compute. In other words consensus is anticipating flat trading profit development,” Liberum said.

The year just ended will have been a strong year for free cash flow for a number of reasons, Liberum predicted, but it also reckons most of the factors behind this are fleeting, namely: a) a working capital reduction reversing the ~£400mln build seen in FY14/15; and b) lower platinum group metal (PGM) prices, which affect the value of auto-catalyst wash-coat inventories.

“We look forward to hearing what JMAT has to say on this front for FY16/17 but note a) Capex [capital expenditure] will likely remain at a high level due to the ERP [enterprise resource planning] investment; b) PGM prices have moved up since end March and all else being equal will inflate the value of 2016/17 auto-catalyst inventory, albeit helping recycling business activity; c) ERP roll-outs at many companies result in a period of safety stocking.”

First quarter results from drug discovery and developments company Summit Therapeutics PLC (LON:SUMM) should largely be an exercise in summarising the progress made on the company’s flagship programmes for Clostridium difficile infection and Duchenne muscular dystrophy.

The numbers themselves are largely irrelevant for a pre-revenue drug development company, and in any case it has barely been three weeks since the company released its full-year numbers.

The cash pile will be of interest; cash and cash equivalents at the end of January stood at £16.3mln, up from £11.3mln a year earlier.

Significant announcements expected

Interims: Summit Therapeutics PLC (LON:SUMM)

Finals: Johnson Matthey PLC (LON:JMAT)

The following widely-held stocks are trading ex-dividend on Thursday: Associated British Foods, Taylor Wimpey

Economic: UK – Construction PMI. EU – ECB press conference, US – ADP employment

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