ii view: does green play Johnson Matthey offer opportunity?

First-half results to 30 September

• Adjusted revenue down 4% to £1.97 billion
• Adjusted operating profit down 19% to £180 million
• Interim dividend unchanged at 22p per share
• Net debt up 2% from March to £1.04 billion

Chief executive Liam Condon said: 

"We are starting to see the benefits of the new strategy and transformation of Johnson Matthey. Against a backdrop of lower precious metal prices which affected headline profitability, we delivered good growth in underlying performance despite a challenging macroeconomic environment.

"Looking forward, we are on track to deliver good growth in underlying performance and I am excited about the opportunities that lie ahead."

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ii round-up:

Johnson Matthey (LSE:JMAT) provides products aimed at reducing harmful emissions.

Its clean air division supplies catalytic converters fitted to exhaust systems for many of the world’s major vehicle manufacturers. The group’s PGM services business is the world's largest recycler of platinum group metals (PGMs), supplying both its own businesses and other external ones with metal products from areas such as vehicle scrappage. 

Its catalyst technologies division provides to industry and includes customers such as oil and chemical companies with emission reducing systems, while its Hydrogen Technologies unit offers components for fuel cells and electrolysers.  

A balance of businesses now considered non-core and being sold sit under its 'Value' division. For a round-up of these latest results announced on 22 November, please click here.  

ii view:

Started in 1817, Johnson Matthey today employs over 12,000 people across more than 30 sites and countries. Over its last financial year to end of March, PGM services generated its biggest slug of sales at almost 50%, followed by clean air at 42%, catalyst technologies and value businesses at around 4% each and a balance of under 1% for its hydrogen division. Geographically, the UK came first at 24% of sales, with the USA next at 19%. 

For investors, the volatility of PGM metal prices and its impact on profits cannot be overlooked. The move towards electric vehicles is reducing the need for its clean air vehicle exhaust products. Costs generally for businesses remain elevated, whilst its hydrogen business is still small in terms of overall group sales and currently generates a loss, with breakeven not expected until 2025/2026. 

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On the upside, cost saving initiatives are reaping rewards with management on track to deliver in excess of £150 million annualised cost savings by the end of 2024/25. Both sales and profit grew in this latest period for catalyst technologies. Sales for the hydrogen division are rising, while overall business has become more focused with sales of now non-core areas ongoing. 

On balance, and while some caution appears sensible, an estimated future dividend yield of close to 5% looks to be paying existing shareholders to remain patient. 

Positives:

• Hydrogen technology opportunities 
• Targeting cost cuts

Negatives:

• Likely reduced demand for catalytic converters 
• Subject to currency headwinds

The average rating of stock market analysts:

Hold