ii view: Johnson Matthey recovery continues after these results

Shares for this clean air focused company have fallen by around two-fifths over the last year, with the new CEO’s business review now pending. We assess prospects. 

Full-year trading update to 31 March

Chief executive Liam Condon said:

“I am excited to have joined Johnson Matthey, and in my first month as chief executive I have been deeply impressed with the people and the quality of our technology.”

ii round-up:

Speciality chemicals and clean air focused Johnson Matthey (LSE:JMAT) today announced that it expected to report full-year profits matching City expectations, with year-end net debt slightly better than forecast. 

JMAT, whose sales largely come from emissions catalysts to reduce air pollution, did however point to continued supply chain disruption for its automotive customers and increased cost inflation.

Johnson Matthey shares rose marginally in UK trading having fallen by around two-fifths over the last year. Its shares tumbled mid-November as investors expressed disappointment following the planned exit of its battery materials business. The required level of investment needed to make the battery business viable in an environment of increasing large-scale competition had become too much. 

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New chief executive Liam Condon is currently reviewing the company’s strategy and ability to benefit from the many opportunities within a world transitioning to net carbon zero. An update is expected at its 26 May full-year results. 

Operating profit for its Clean Air or vehicle catalytic converter business is expected to be above the prior year given a recovery in demand as the world has emerged from the pandemic. But volumes have remained constrained largely due to supply chain disruption across the automotive industry and the continued shortage of semi-conductor chips hindering production. Motor manufacturers including Volkswagen AG (XETRA:VOW), Ford (NYSE:F) and Tesla (NASDAQ:TSLA) have all eluded to such challenges. 

Johnson’s Hydrogen Technologies business is expected to report an operating loss due to increased investment. Work to expand its manufacturing capacity in the UK and China continues. 

The FTSE 250 company previously halted all new commercial activities in Russia and Belarus given the situation in Ukraine. During its last financial year only around 1% of sales related to Russia. 

ii view:

Founded in 1817, Johnson Matthey today employs over 12,000 people across around 30 countries. Its Clean Air business makes products for automotive catalytic converters whilst its Efficient Natural Resources business processes metals and chemicals used in a range of clean air products including those for catalytic converters. Other businesses under its New Markets division include its hydrogen technologies unit and the now to be exited battery materials business.

For investors, rising costs and volume constraints hindering its Clean Air business cannot be ignored. Consumer moves towards fully electric vehicles is also a threat to Johnson’s fossil fuel emission reduction products. Its planned exit from the battery business removes what was just months ago seen as a growth driver. 

More favourably, the need to reduce harmful vehicle exhaust and industrial emissions isn’t going away anytime soon. The previously announced sale of its Health business has increased management focus, while moves to raise efficiency and reduce cost via moves to newer production facilities are ongoing. A forecast future dividend yield in the region of 4% is also not to be overlooked in an era of low interest rates. For now, and with the new chief executive arrived from Bayer AG (XETRA:BAYN) looking to sharpen group strategy, the shares could attract support. 

Positives: 

• Hydrogen technology opportunities 
• Relatively attractive dividend payment

Negatives:

• Likely reduced demand for catalytic converters 
• Exiting a previously perceived growth business

The average rating of stock market analysts:

Hold