Company Reports

We will discontinue analyst coverage of Johnson Matthey on or about March 1, 2024. We provide analyst research and ratings on over 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

Narrow-moat Johnson Matthey reported first-half EBIT of GBP 180 million, 6% below Vara consensus and down 15% at constant exchange rates year on year. The decline was due to lower average precious metal prices and reduced refinery volumes hitting the platinum group metals services business, partly offset by transformation benefits of GBP 25 million, strong growth in hydrogen technologies, and further progress in catalyst technologies. Lower average precious metal prices were the main factor weighing on operating profit, with a hit of negative GBP 55 million in the first half. For fiscal 2024, management upgraded its target for operating performance (we assume EBIT) to grow at least by a high single digit (previously at least a midsingle digit). This growth is expected to be driven by transformation benefits of GBP 55 million for the year. We don’t expect to make a material change to our GBX 2,200 fair value estimate. Shares are trading 4% up at the time of writing. At current levels, shares look undervalued.

Narrow-moat Johnson Matthey reported second-half EBIT of GBP 243 million, around 4% ahead of Vara consensus. However, EBIT for fiscal 2023 at GBP 465 million was down 21% and below the EUR 487 midpoint guidance. The decline was due to lower average platinum group metal prices with the remainder largely due to cost inflation and lower volumes in PGM services and clean air. This was partly offset by transformation benefits of GBP 45 million. Management remains confident over its 2025 targets. We don’t expect to make a material change to our GBX 2,200 fair value estimate. At current levels, shares look fairly valued.

Johnson Matthey is a U.K.-based specialty chemical company with unique expertise in catalysts, chemicals, and manufactured products derived from platinum group metals, or PGMs. Sales are fairly concentrated in developed markets, particularly Europe and North America. China, growing fast, now accounts for 15% of sales. Roughly 60% of sales are targeted at the automobile sector.

Narrow-moat Johnson Matthey reported first-half EBIT of GBP 222 million, down 25% versus the prior-year period and broadly in line with Vara consensus. Profits were hit by cost inflation, particularly energy, as price increases were only able to offset approximately half of the cost inflation. Further price increases to recover cost inflation will continue. Management indicated that second-half performance should be stronger than the first half and that operating performance for the year (we assume this means EBIT) should be within the Vara consensus range of GBP 458 million-GBP 516 million. We don’t expect to make a material change to our GBX 2,200 fair value estimate. At current levels, the shares look fairly valued.

Narrow-moat Johnson Matthey reported second-half EBIT of GBP 263 million, down 25% but ahead of the Vara consensus. Fiscal 2023 guidance implies EBIT of around GBP 490 million-GBP 560 million, or about a 5% decline year over year, using the midpoint. The strategy update seems more evolutionary than revolutionary to us, which is likely why shares are down around 5% intraday, worst of the group. Our fiscal 2023 EBIT estimate is currently within the guidance range at GBP 508 million, so we don’t expect to make a material change to our GBX 2,200 fair value estimate. At current levels, the shares look fairly valued.

The European chemicals sector enjoyed strong investment returns once central banks turned on the liquidity taps to combat the coronavirus pandemic in March 2020. At the start of 2022, the outlook remained bright as demand remained robust while inflation, particularly for raw materials, was expected to peak in the first half of 2022. However, we think the Russia-Ukraine war has changed the equation, leading to a more ominous picture in the back half of the year given our expectations for sustained raw material inflation and rising interest rates. Considering guidance provided by companies in the sector does not account for the impact of the Russia-Ukraine war, we think sector guidance is generally too optimistic and thus, cuts may be necessary in the second half of 2022. While our 2022 outlook for the sector has dimmed, we see opportunities at current prices. For the industrial chemical companies, we prefer Lanxess given its compelling valuation (0.5 times price/fair value estimate) and dual catalysts (business transformation, lithium project) that should create value regardless of the economic environment. For the consumer chemical companies, we prefer Chr. Hansen given its relatively attractive valuation versus peers, wide moat rating, and leading organic growth outlook.

Narrow-moat Johnson Matthey shares rose 19% on April 29 after Reuters reported that Standard Industries had taken a 5.23% stake in the company. Recall that Standard Industries acquired W.R. Grace, a similar process catalyst company, in 2021. We continue to value Johnson Matthey ignoring any takeout situation as neither company is commenting on the investment. Consequently, the recent boost in the share price leaves the stock looking fairly valued, on our estimates. However, we do see value for aggressive investors in a potential acquisition scenario as we think the company could fetch up to GBX 3,400 per share, 55% upside from our current fair value estimate of GBX 2,200.

Narrow-moat Johnson Matthey announced a preclose trading update on its full-year results. Hard numbers were scant, but commentary indicated that financial performance is broadly in line with market expectations. We don’t expect to make a material change to our GBX 2,200 fair value estimate. At current levels, the shares look fairly valued.

Narrow-moat Johnson Matthey provided an update on its exit plan for its eLNO battery materials business. As we expected, a sale of the entire business was unachievable, and consequently, assets will be sold off individually with disposal proceeds expected to be below closing costs. As a result, after disposal proceeds, total cash exit costs are expected to be approximately GBP 150 million. Shares fell around 3% after the announcement. We don’t expect to make a material change to our GBX 2,200 fair value estimate. At current levels, the shares look fairly valued.

Narrow-moat Johnson Matthey announced the sale of its health business to Altaris Capital Partners after a period of strategic review. Enterprise value of the transaction is GBP 325 million, which represents 9.8 times underlying EBITDA. This is below the low end of our expected range, and, therefore, we lower our fair value estimate to GBX 2,200 from GBX 2,400. At current levels, shares look fairly valued.

Johnson Matthey is a U.K.-based specialty chemical company with unique expertise in catalysts, chemicals, and manufactured products derived from platinum group metals, or PGMs. Sales are fairly concentrated in developed markets, particularly Europe and North America. China, growing fast, now accounts for 15% of sales. Roughly 60% of sales are targeted at the automobile sector.

Johnson Matthey is a U.K.-based specialty chemical company with unique expertise in catalysts, chemicals, and manufactured products derived from platinum group metals, or PGMs. Sales are fairly concentrated in developed markets, particularly Europe and North America. China, growing fast, now accounts for 15% of sales. Roughly 60% of sales are targeted at the automobile sector.

Narrow-moat Johnson Matthey news flow continues to be busy. Overall, first-half performance was broadly in line with consensus expectations as underlying operating profit doubled compared with the prior-year period that was heavily affected by coronavirus shutdowns. Shares are down 1%-2% intraday. However, the outlook for the health segment has deteriorated, which will likely have an impact on the potential sale price of the business and capital intensity excluding eLNO is higher than our expectations. Altogether, we expect to lower our GBX 2,650 fair value estimate by a single-digit percentage.

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.

Johnson Matthey is a U.K.-based specialty chemical company with unique expertise in catalysts, chemicals, and manufactured products derived from platinum group metals, or PGMs. Sales are fairly concentrated in developed markets, particularly Europe and North America. China, growing fast, now accounts for 15% of sales. Roughly 60% of sales are targeted at the automobile sector.

On Aug. 5, U.S. President Joe Biden announced plans to sign an executive order calling for electric vehicles to be 40%-50% of new auto sales in the United States by 2030. The target includes battery electric vehicles and plug-in hybrids. This mirrors our thesis that the U.S. will see 30% EV adoption and 50% hybrid adoption, of which we expect plug-in hybrids will be 10%-20%, by 2030. Though the order is nonbinding, this aligns with stated plans from multiple U.S. automakers. As a result, we maintain our U.S. EV and hybrid adoption outlook. Using our regional buildup model, we continue to forecast that EVs and hybrids will make up 2 of every 3 autos sold globally by 2030, with 30% coming from EVs.

Narrow-moat Johnson Matthey raised fiscal 2022 guidance with its first-quarter trading update. The company now expects at least midteens growth in EBIT compared with low- to midteens growth previously. We’re currently forecasting 15% growth in EBIT so we don’t expect to make a material change to our forecast or GBX 3,400 fair value estimate. At current levels, the shares look slightly undervalued.

By 2030, electric vehicles (EVs) will be 30% of total autos sold globally, up from 3% in 2020. By 2025, EVs will become cheaper for entry-level cars and reach performance parity with internal combustion engines (ICEs). With sufficient charging infrastructure being built throughout China, Europe, and the United States, the second half of this decade will see rapid EV adoption. Hybrids will reach cost parity for light trucks. As a result, EVs and hybrids will be two of every three autos sold globally by 2030.

Narrow-moat Johnson Matthey reported fiscal 2021 results that were in line with the Visible Alpha consensus, as expected, given the pre-release earlier in the quarter. However, shares are trading off around 4% intraday. We think this was due to somewhat disappointing fiscal 2022 guidance, including higher-than-expected capital expenditures. We don’t expect to make a material change to our forecast or GBX 3,400 fair value estimate. At current levels, the shares look slightly undervalued.