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Are Any of These 5 FTSE 100 Shares a Buy? – Johnson Matthey PLC (JMAT), Rolls-Royce Holding PLC (RR)

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LONDON — I have recently been evaluating the investment cases for a multitude of FTSE 100 companies.

Johnson Matthey PLCAlthough Britain’s foremost share index has risen 7.7% so far in 2013, I believe many London-listed stocks still have much further to run, while conversely others seem overdue for a correction. So how do the following five stocks weigh up?

IMI plc (LON:IMI)
I believe IMI should continue to punch fresh record highs — the shares of the engineering specialist hit a new peak above 1,230 pence last week — as its niche product offerings in specialist growth markets should uphold long-term strength.

The company has shown excellent resilience despite the subdued global economy, revealing in November’s interims that revenues during the initial ten months of the year were 6% ahead of the corresponding 2011 period.

City analysts expect earnings per share to rise just 1% in 2012 — results for last year are due on Thursday, 7 March — but to accelerate thereafter. A 5% increase is anticipated this year before doubling to 10% in 2014.

IMI trades at a premium, with a P/E ratio of 14.9 for last year expected to remain elevated at 14.2 and 12.9 in 2013 and 2014 respectively. But I believe the security associated with the company’s quality product range and excellent aftermarket revenues warrants a higher rating.

Severn Trent Plc (LON:SVT)
I think investors should hold off on taking the plunge with Severn Trent, at least while the uncertainty surrounding next year’s water industry regulatory review continues to threaten the share price.

This utilities play is popular among income investors owing to the potential for plump dividends — a payout yield of 4.5% in 2012 is forecast to rise to 4.7% for the year ending March 2013 before marching to 5% in 2014.

However, these payments are not well covered, with a readout of 1.2 expected by City analysts in both 2013 and 2014. Dividend cover below 2 is generally considered risky. And mediocre medium-term growth prospects — earnings per share are expected to rise just 4% and 3% this year and next — could put projected dividends under pressure.

Ofwat is scheduled to unveil a raft of changes to water industry regulations in 2014 that determine the pricing for the 2015-2020 period. The impact of rising utilities bills on households could result in a harsh ruling for the water companies, possibly squeezing earnings over the longer term.

Johnson Matthey PLC (LON:JMAT)
I believe that, over the long term, diversified chemicals play Johnson Matthey PLC (LON:JMAT) is well positioned to profit from rising precious-metal prices, increasing scrap-metal levels and rising demand for catalytic converters.

But I feel investors should hold off the shares for the time being, as enduring weakness in key cyclical end markets is casting a pall over current earnings prospects.

Excluding precious-metals sales, revenue fell 2% in the third quarter, which in turn pushed underlying profit 19% lower. And current weakness in the European car and truck markets are expected to keep dragging on the firm’s critical Emission Control Technologies arm.

City analysts forecast earnings per share to decline 6% during the year ending March 2013. Profits are then expected to modestly bounce back in 2014 and 2015, however, by 7% and 9% respectively.

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