Johnson Matthey Exits eLNO, CEO Departs; FVE Down to GBX 2,650

Johnson Matthey announced it is exiting the fledgling cathode battery materials business, eLNO, due to low potential returns from lack of scale in an increasingly commoditizing market. In turn, CEO Robert MacLeod announced his retirement. As eLNO was a huge bet with significant capital already invested, we are lowering our capital allocation rating to Poor from Standard. Also, a weak trading update indicated that full-year EBIT should be at the bottom of consensus expectations, or GBP 550 million. The shares are down 17% intraday. We are lowering our fair value estimate 22% to GBX 2,650 but maintain our narrow moat rating. The shares currently look fairly valued.