LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.
So right now I am trawling through the FTSE 100 and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.
Today I am looking at Johnson Matthey (JMAT -0.90%) to determine whether you should consider buying the shares at 2,247 pence.
I am assessing each company on several ratios:
Price/earnings: Does the share look like a good value when compared against its competitors?
Price/earnings to growth: Does the share look like a good value factoring in predicted growth?
Yield: Does the share provide a solid income for investors?
Dividend cover: Is the dividend sustainable?
So let's look at the numbers:
|
Price |
3-Year EPS Growth |
Projected P/E |
PEG |
Yield |
3-Year Dividend Growth |
Dividend Cover |
|---|---|---|---|---|---|---|
|
2,247 pence |
78% |
15.2 |
N/A |
2.5% |
41% |
2.9 |
The consensus analyst estimate for next year's earnings per share is 148 pence (down 8%) and dividend per share is 58 pence (up 5%).
Trading on a projected P/E of 15.2, Johnson Matthey appears cheaper than its peers in the chemicals sector, which are currently trading on an average P/E of around 20. Unfortunately, Johnson Matthey's relatively low P/E and falling EPS give a negative PEG ratio, which cannot help with my analysis.
Offering a 2.5% yield, the dividend is marginally above the sector average of 2.1%. However, Johnson Matthey does have a three-year compounded dividend growth rate of 41%, implying the yield could soon overtake that of its peers.
Indeed, the dividend is just under three times covered, giving Johnson Matthey plenty room for further payout growth.
Johnson Matthey is relatively cheap, what about falling growth?
Johnson Matthey is separated into three main divisions, of which the largest is responsible for the refining of precious metals. The second-largest division is involved in environmental technologies and manufactures catalytic converters for the car industry. The last and by far the smallest is the fine-chemicals division, which supplies generic treatments to the pharmaceutical industry.
I believe Johnson Matthey currently looks relatively cheap compared to its peers. However, the company's earnings are starting to fall as precious-metal prices cool off from the record highs seen in 2011. Indeed, during the first half of 2012, the group's precious-metal revenue suffered a 22% fall.
In addition, only a few days ago, Anglo Platinum, which contributes about 8% of Johnson Matthey's total revenue, said it was not going to renew its platinum supply contract at the end of the year.
Furthermore, within the company's environmental-technologies division, revenues fell 8% during the first half of 2012, as the sluggish European car market continues to depress demand for catalytic converters.
Nonetheless, on a positive note, I can see that the group's balance sheet is strong. In particular, the latest net debt position was just below 700 million pounds -- or roughly 1.5 times group profit before tax.
So, after taking all of that into account, I believe now does not look to be a good time to buy Johnson Matthey at 2,247 pence.
More FTSE opportunities
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In the meantime, please stay tuned for my next verdict on a FTSE 100 share.
