Head To Head: Johnson Matthey vs Croda

Published in Investing on 29 November 2012

Which blue-chip chemicals company should you buy today?

In this series, some of your favourite FTSE 100 (UKX) shares go head to head in a three-round contest for superiority.

In Round 1, the firms fight on earnings; in Round 2, on dividends; and Round 3 is a battle of the balance sheets. The winner will be the company that has racked up most points at the end of the contest.

Stepping into the ring today are blue-chip chemicals companies Johnson Matthey (LSE: JMAT) and Croda International (LSE: CRDA).

The shares of both companies have outperformed the FTSE 100 over the past year. The Footsie is up 9%, but Johnson Matthey is up 27% and Croda 34%. However, over the last six months and three months the two companies have moderately underperformed the index.

Let's take our seats at ringside.

Round 1: earnings

 Johnson MattheyCroda
Recent share price2,298p2,343p
Last year price-to-earnings (P/E)15.019.1
Current year forecast P/E15.318.4
Four-year earnings per share (eps) compound annual growth rate (CAGR) (%)1443
Current year forecast eps growth (%)-24
Forecast operating margin (%)423

Source: Digital Look. Winners in bold.

Johnson Matthey takes the first two points, but Croda edges the round by taking the remaining three, scoring particularly well on historic earnings growth and operating margin.

Round 2: dividends

 Johnson MattheyCroda
Last year dividend yield (%)2.42.3
Current year forecast dividend yield (%)2.52.4
Four-year dividend CAGR (%)1137
Current year forecast dividend growth (%)52
Forecast dividend cover2.62.3

Source: Digital Look. Winners in bold.

Johnson Matthey takes four of the five points in round two, although the scoring on the yield figures was very close. As with historic earnings growth in round one, Croda scores strongly on historic dividend growth in this round.

Round 3: balance sheet

 Johnson MattheyCroda
Price-to-book (P/B) ratio3.112.3
Net gearing (%)3287

Source: Digital Look. Winners in bold.

Johnson Matthey finishes with a flourish, taking both points in round three and the overall contest by two rounds to one. The total points tally is Johnson Matthey eight and Croda four.

Post-match assessment

This contest was a little closer than the headline eight-points-to-four win for Johnson Matthey suggests, as the dividend yield points were very tight. Nevertheless, this was still a reasonably comfortable victory for Johnson Matthey. In addition to the two yield points, Johnson Matthey took the other three valuation-ratio points: historic and forecast P/E, and P/B.

Both companies have spoken recently of depressed market conditions, and analysts are forecasting current-year eps growth well below the firms' historic rates -- indeed, negative growth in Johnson Matthey's case. Dividend growth is likewise expected to fall well short of past levels.

With P/Es significantly above the market average and dividend yields significantly below, neither company looks a particularly attractive investment proposition to me at the present time.

If you're more interested in 'value' companies, on lower P/Es and higher yields, help yourself to the free and exclusive Motley Fool report, "8 Shares Held By Britain's Super Investor".

Top fund manager Neil Woodford has outperformed the market by more than 300% over the past 15 years by investing in dividend-paying blue chips when other investors are shunning them.

In "8 Shares Held By Britain's Super Investor", you can learn about Woodford's enormously successful strategy and some of the blue-chip companies he currently favours. As I say, the report is free and you can download it right now: simply click here.

> G A Chester does not own shares in any of the companies mentioned in this article.

Share & subscribe


The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.


There are no comments yet - why not be the first?

Join the conversation

Please take note - some tags have changed.

Line breaks are converted automatically.

You may use the following tags in your post: [b]bolded text[/b], [i]italicised text[/i]. All other tags will be removed from your post.

If you want to add a link, please ensure you type it as http://www.fool.co.uk as opposed to www.fool.co.uk.

Hello stranger

To add your own comment, please login.

Not yet registered? Register now.