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Johnson Matthey Plc (JMAT) Ord GBP1.109245

Sell:2,290.00p Buy:2,293.00p 0 Change: 69.00p (2.92%)
FTSE 250:1.03%
Market closed Prices as at close on 23 May 2022 Prices delayed by at least 15 minutes | Switch to live prices |
Change: 69.00p (2.92%)
Market closed Prices as at close on 23 May 2022 Prices delayed by at least 15 minutes | Switch to live prices |
Change: 69.00p (2.92%)
Market closed Prices as at close on 23 May 2022 Prices delayed by at least 15 minutes | Switch to live prices |
The selling price currently displayed is higher than the buying price. This can occur temporarily for a variety of reasons; shortly before the market opens, after the market closes or because of extraordinary price volatility during the trading day.

HL comment (8 April 2022)

Johnson Matthey expects to report full year operating performance in-line with market expectations. That reflects good performances from Clean Air and Efficient Natural Resources.

The previously announced strategy review is ongoing, with further details expected with full year results. The exit from Advanced Glass Technologies has completed, and the planned disposals of Battery Materials and Health are expected ''shortly''.

The group warned of ongoing uncertainty and supply chain disruption for the new financial year.

The shares were broadly flat following the announcement.

View the latest Johnson Matthey share price and how to deal

Our View

Johnson Matthey is the leading manufacturer of catalytic converters - the clever bits in car exhausts that strip out the worst emissions. That makes the shift to electric vehicles a serious concern.

JMAT's response was to pivot to become a battery material manufacturer. That was until management scrapped the plans out of the blue and went back to the drawing board. To say the market was taken by surprise is an understatement. The group's expecting £465m in exceptional costs, as it writes down the value of these assets and other associated cash costs.

The announced sale of the Health business is another mark of a company that's stripping back to its core business. The impairment charge of £200m will impact the bottom line and we'll have to wait until May to find out what the group will do with the extra cash.

On the bright side, these should cause very little disruption to the group's overall operations. The entire New Markets division, where the project's housed, makes up just 1.8% of underlying operating profits. And is loss-making. The rest comes in near equal parts from Efficient Natural Resources, which provides platinum group metals to a range of industries and the catalytic converter business--which although under siege, isn't going to dry up immediately.

Healthy cash generation from the converter business, together with a relatively strong balance sheet and the profits from the sales of glass and health divisions, mean JMAT will have the financial firepower to execute a new strategy.

Management are looking at ways to expand their presence in hydrogen technologies and decarbonising the chemicals value chain. The entire Catalyst Technologies business only generated sales of £223m in the first half, versus £1.2bn in Clean Air, so it's growing from a low base.

Fortunately, traditional cars won't go the way of the dodo for some time. And in the meantime, the automotive business is generating significant cash flows. So significant in fact, that management felt able to start a, now largely complete, £200m share buyback scheme. Unusually, we find that a little concerning. With a need to spark rapid growth in the non-automotive divisions the fact management couldn't find profitable investment opportunities for that cash is concerning.

Longer term, with the EV (Electric Vehicle) revolution gathering pace, JMAT needs to move quickly if it's to align itself with a greener auto market. Embarking on a new business venture is expensive and there's no guarantee it will pan out, but ultimately the group needs to find new avenues for growth.

New CEO, Liam Condon will have his work cut out as he takes the helm of a ship without a clear direction. The transition may be coming at the right time though - a fresh pair of eyes could be just what JMAT needs. The core business is humming for now, but we can't say how much longer that'll be the case.

Johnson Matthey key facts

  • Price/earnings ratio: 8.5
  • Ten year average Price/earnings ratio: 14.0
  • Prospective dividend yield (next 12 months): 4.3%

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

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Trading Statement

Clean Air full year operating performance is expected to be above last year, following a recovery in demand - with "increased activity in autos as end markets partially recovered". Volumes are still under pressure because of industry-wide supply chain problems. The ongoing efficiency drive means the group plans to deliver at least £4bn of pre-tax cash over the next decade.

Higher precious metal prices drove Platinum Group Metals Services' performance, meaning the Efficient Natural Resources division had a strong year. Catalyst Technologies are expected to be higher than last year, but traditional fuels, especially refinery catalysts, were weaker following the strong performance last year.

In Other Markets, ongoing investment means Hydrogen Technologies is expected to report an operating loss. Work continues to increase capacity in the UK and China, with additional production expected in early 2023. As previously guided, the Battery Materials business will also report an underlying operating loss. Exceptional costs of up to £465m are expected as the group writes down its value.

The sale of Advanced Glass Technologies, and the recovery in demand, means Value Businesses is expected to report strong numbers.

Year-end net debt of around £900m is within the group's leverage target range. The £200m buyback is ongoing.

The group said: "Looking forward to the year ending 31st March 2023, we are entering a period of greater political and economic uncertainty with both the ongoing disruptive effects of COVID-19 and the impacts of the conflict in Ukraine.

We expect continued supply chain disruption for our automotive customers, increased cost inflation which we will seek to recover through pricing and efficiencies, and continued near-term market volatility."

Find out more about Johnson Matthey shares including how to invest

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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