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Johnson Matthey doubles down on exhausts

The catalytic converter manufacturer sells more of itself in a bid to refocus the business
November 24, 2021
  • Johnson Matthey announces share buyback programme and sale of its glass unit
  • Impairment from battery materials 'exit' £314m 

Johnson Matthey (JMAT) has confirmed the sale of another division just weeks after shocking investors with the withdrawal from the battery materials sector and full-year profits downgrade. The company, which is largely focused on catalytic converter production through its ‘clean air’ division, said it had agreed to sell its advanced glass unit for £178m.

This will take some of the edge off the £314m impairment from the battery metals exit. The health unit also remains up for sale after struggling in this period, and the company has also announced it would close its UK plant over the next two years. 

Alongside this reorganisation, the company published a stronger set of half-year numbers: sales were up a fifth at £1.9bn, although this was below the consensus estimate of £2bn, and Johnson Matthey will now launch a £200m share buyback plan. This comes as the company closes in on its 1.5-2 times net debt-to-Ebitda leverage ratio, before counting the proceeds of the glass sale. Pulling the plug on the battery metals business will save around £150m in capital spending this year. 

Outgoing chief executive Robert MacLeod, who leaves at the end of February, said the disposals would result in a company that was more focused on growth opportunities. “We have strong foundations in clean air and in efficient natural resources and exciting opportunities to drive our future growth in circularity, hydrogen and decarbonisation,” he said. 

Johnson Matthey faces questions about its long-term future given its reliance on the combustion-engine car industry for the lion’s share of its earnings. The company said it would be “focusing capital on climate change solutions”, through its work in platinum group metal (PGM) recycling, hydrogen, and catalyst technologies, although these will be “underpinned” by its car-focused business. A boost to this sector could come from the upcoming Euro 7 emissions guidelines, which are likely to be introduced by 2026. 

The clean air division saw sales increase in the first half as demand returned, although Johnson Matthey said buyers were still constrained by semiconductor shortages. CFO Stephen Oxley said the automotive outlook had worsened in recent months, while lower precious metals prices would also hit profits for the full-year. The company had forecast a £100m-plus positive impact from higher precious metals prices, but this has now been downgraded to £45m. At the same time, the company now forecasts “low single-digit growth” in the underlying operating profit for the full year, from a base of £504m in 2021. 

Johnson Matthey made a bold call to exit battery metals this month, potentially avoiding years of heavy spending in a tough competitive market, although the decision could have come sooner. The medium-term outlook may turn more positive, given the new emissions standards and lower cost base thanks to its divestments, but investors are still left wondering what happens next. Hold. 

Last IC View: Hold, 2,236p, 11 Nov 2021

JOHNSON MATTHEY (JMAT)  
ORD PRICE:2,177pMARKET VALUE:£4.19bn
TOUCH:2,176-2,179p12-MONTH HIGH:3,363pLOW: 2,000p
DIVIDEND YIELD:3.3%PE RATIO:27
NET ASSET VALUE:1,388pNET DEBT:26%
Half-year to 30 SepTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20206.982612.320.0
20218.59-9-1522.0
% change+23--+10
Ex-div:2 Dec   
Payment:1 Feb