LONDON -- In nearly a decade as an investment writer, I must have covered just about every member of the blue-chip FTSE 100 index at one time or another.
Nevertheless, I have never reviewed the results of Johnson Matthey (LSE: JMAT.L), which is a world-leading maker of speciality chemicals, including precious-metal catalysts for the car industry. It's a great shame that I've never run the rule over this business before, because it's a shining example of a great British success story. Indeed, the firm was the biggest riser on the FTSE 100 leaderboard this morning after unveiling a sparkling set of results. As I write, its shares are up 75 pence (3.4%) to 2,272 pence, valuing the group at nearly 5 billion pounds.
What's more, the world’s largest maker of catalytic converters is doing so well that it has declared a special dividend of 1 pound a share, with this payout temporarily boosting its dividend yield by an extra 4.4%.
Recession? What recession?
Revenue at Johnson Matthey surged 20% to exceed 12 billion pounds. That's right: In this weak, post-crash economic environment, this company increased its sales by a fifth. As a result, profit before tax soared 58% to almost 410 million pounds.
Given this knockout performance, it's hardly surprising that earnings per share exploded, leaping by three-quarters to close at 149 pence. This allowed Johnson Matthey to increase its full-year dividend by 20% to 55 pence per share, up 9 pence.
In addition, the group decided to return some excess capital to its shareholders via the 1 pound-a-share special dividend mentioned earlier, worth 212 million pounds. This is a great way to delight your owners, rather than splashing the cash on an ill-fated acquisition or a share buyback of dubious merit.
As well as directing a flood of cash to its shareholders, Johnson Matthey's strong cash flow reduced its net debt, too. Net debt dropped by 29% -- more than 185 million pounds -- to just more than 454 million pounds.
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What's not to like?
Commenting on these results, chief executive Neil Carson said:
Johnson Matthey has delivered another year of strong growth with a good contribution from all of its divisions. The group is well positioned for the year ahead and we remain confident that our strong positions in key markets will allow us to make further progress in Environmental Technologies and Fine Chemicals in 2012/13. This, however, will be offset by a weaker performance from Precious Metal Products, if precious metal prices remain at current levels.
In other words, the business is "going great guns," as we like to say, but falling metals prices in 2012 will dent sales and profits at its biggest division. Even so, thanks to investment in research and development and structural growth, Carson is "confident of the group's continuing growth potential."
We're over five months into the year, and I can't recall seeing a better set of "shoot out the lights" results from a blue-chip firm. Then again, Johnson Matthey's shares aren't cheap. At 2,272 pence, they trade at a premium to the wider market, thanks to a forward price-to-earnings ratio of 15.3. The prospective dividend yield (excluding the special dividend) is a modest 2.5%, covered a healthy 2.7 times.
In short, while there are undoubtedly cheaper shares, few businesses are a class act in the way that Johnson Matthey is. Hence, it may well be worth paying a higher price to buy into this well-run British cash cow.
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