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TEMPUS

Two-way street for cleaner vehicles

The Times

Johnson Matthey may be a much simpler business than in the days when it used to supply Anglo American with platinum but as the halfway figures show, it still has a lot of parts moving in different directions. The FTSE 100 multinational may be best thought of as a specialist chemicals company seeking new end markets and applications for its products, but some of the existing markets are proving challenging.

Two thirds of the group is in emission control technologies, allowing cars to limit pollution from their exhausts. Europe is a strong market here, driven by ever tighter regulation. The US is weaker, both in terms of light vehicles and the heavy truck market.

The Trump effect here is hard to read. Any stimulus to infrastructure will require the building of more of those trucks, but the president-elect is unlikely to look favourably on any tighter controls on vehicle emissions.

The process technologies division serves the oil and gas industry, inevitably not ordering much, and chemicals, where little new plant is being built and existing facilities are ordering replacement products less frequently.

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Precious metals are affected by the low price of platinum and palladium. The worst performer, on the face of it, is fine chemicals, which provides the raw materials to pharmaceutical producers, with underlying profits down 34 per cent. This looks like a timing issue; the mix of chemicals was disadvantageous but will correct in the second half.

The key to Johnson Matthey’s future is its nascent new business activities, which should break even in the next financial year. The company is investing in R&D, including £30 million to increase production in lithium iron phosphate, used in hybrid and electric cars.

Johnson Matthey is a clear beneficiary of the low pound and has been raising the amount this will contribute to profits this year, now standing at £65 million. First half revenues and pre-tax profits were both up by 5 per cent; take out currencies and they were down by
1 per cent and 3 per cent respectively.

The shares were off on the halfway figures, for no obvious reason. Down 108p at £32.27, they sell on 16 times earnings. I would be inclined to give them the benefit of the doubt.

My advice Buy
Why First half numbers were held back by some one-offs but the upward trend is there, particularly in terms of developing new businesses

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Premier Oil
IT may have always been planning an announcement, but Premier Oil’s ten-month trading update yesterday came at an opportune time. The shares have been undermined by fears over the $2.8 billion debt and reports that some lenders were considering walking away; last week the company had to offer reassurance that this was not so.

Premier has now said it is most of the way through a renegotiation of its lending facilities that would see repayments pushed back and sufficient covenant headroom to prevent any breach before its huge Catcher field in the North Sea starts producing cash next year.

The downside is that lenders are being given some say-so in allowing big new projects to go ahead, including the Sea Lion field off the Falklands. This is a long way off still; cost of production is about where the oil price is now, and the company has been given a three-year extension to the licence.

As ever with Premier, there is a downside, and as usual it is the Solan field, bedevilled by delays and problems and with production now constrained by technical difficulties. Elsewhere, production is running in line with expectations and costs are coming down. Once Catcher is in full production it will be the fourth biggest asset and producing cash flow of up to $250 million to reduce debt.

The share price reaction was muted, off ½p at 54p. With the debt problem cleared up and production at a third of the current world price, it is possible to take a positive view on Premier again.
My advice
Buy
Why Highly speculative, but the worst could be past

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CRH
The Irish building materials company CRH reckons to have €1.5-€2 billion that it might be able to spend on acquisitions. It has already done well enough out of earlier purchases, including some businesses that had to be sold on the merger of Lafarge and Holcim a couple of years ago.

The company gets about 60 per cent of profits from the Americas and was sounding bullish enough about prospects there even before any post-election infrastructure boost, with a number of US states having already voted to raise spending by an extra $40 billion over five years. The nine-month figures show some inevitable slowing in growth in the third quarter from the Americas — the weather in the first half was unusually benign, while the previous second half was strong.

Meanwhile, Europe continues to recover slowly, with sales up 4 per cent in the nine months. CRH was able to raise sales across the group by 22 per cent across the period and earnings by 14 per cent to €2.4 billion. That acquisition spending looks promising, but the shares, up 45p at £27.46, have been strong since the start of the year and on 21 times earnings look fully priced.
My advice
Avoid
Why The shares sell on a historically high multiple

And finally...

NewRiver REIT is the latest property company to detect no great downside from the referendum — indeed, it capitalised on the uncertainty by making a few quick acquisitions. One, a retail warehouse in Sheffield, could mean a one-off special payment to investors. That highlights the attraction of the shares, recommended here in July, and the resilient nature of its regional shopping centres. Even up almost 4 per cent yesterday, the shares still yield an attractive 6 per cent plus without any one-off payments.

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