There was a lot of logic behind chemicals group Johnson Matthey’s (JMAT) decision in November to abandon investment in its battery materials business.
Although the company had pumped millions into the venture – it had net assets of £340m and employed 430 people as of the end of October – it reasoned that competition in the sector was growing at such a pace that it wouldn’t make a decent return on the business.
Investors were clearly disappointed, though – the company’s share price sank by 19 per cent on the day and hasn’t recovered since. Most (£314m) of the division’s assets were written off, leading the company to declare a £9m loss before tax for the six months to 30 September, despite sales increasing by 23 per cent to £8.59bn.
It also agreed the sale of its Advanced Glass Technologies business for £178m in November and said the proceeds would be used to fund a £200m share buyback programme. That, and the disposal of its health business for £325m – or 9.8 times underlying cash profit – last month have failed to lift the gloom.
The main problem for Johnson Matthey is it makes most of its money from its catalytic converter technology, and with a ban on vehicles powered by combustion engines looming in the UK this is a dying business. Attempts to build other sources of revenue are not, as yet, paying off.
The company’s shares now trade at just over nine times forecast earnings, below its peers and its own five-year average of 13 times earnings. With the buyback programme now under way, executives have felt confident enough of a bounceback to increase their stakes. Chairman Patrick Thomas bought over £100,000 of shares on 6 January, two days after non-executive Doug Webb bought more than £50,000-worth. At least one institution is betting the slide will continue, though – BlackRock Investment Management currently has a disclosable net short position equating to 1.27 per cent of the company’s shares.
