Johnson Matthey Profits Hit by Rising Energy Costs; Shares Fairly Valued

Narrow-moat Johnson Matthey reported first-half EBIT of GBP 222 million, down 25% versus the prior-year period and broadly in line with Vara consensus. Profits were hit by cost inflation, particularly energy, as price increases were only able to offset approximately half of the cost inflation. Further price increases to recover cost inflation will continue. Management indicated that second-half performance should be stronger than the first half and that operating performance for the year (we assume this means EBIT) should be within the Vara consensus range of GBP 458 million-GBP 516 million. We don’t expect to make a material change to our GBX 2,200 fair value estimate. At current levels, the shares look fairly valued.