Johnson Matthey breathes easy on Clean Air

It came shortly after a flurry of pledges from national governments and auto-makers on their planned transition to electric motoring, something of an issue given the 201-year old speciality chemicals group is one of the biggest producers of catalytic converters – surplus to requirements in pure electric vehicles (EV). So it may seem curious that the Clean Air division, which accounts for nearly two-thirds of group revenue, still recorded 9 per cent sale growth at constant currencies.

The Light Duty Vehicle (LDV) Catalysts business grew ahead of global vehicle production, keeping the group on track to capture 65 per cent of the Europe’s light duty diesel market by next March. Although the overall market is likely to contract over time, Johnson Matthey is positioning itself to secure greater market share, with its prediction of "sustained growth over the next decade” also supported by increasingly stringent regulatory measures on air quality in auto growth markets, most notably China.

Meanwhile, the group’s financials were in line with consensus, with constant-currency operating profit flat on the previous year at £525m, while reported earnings were constricted through £90m in impairment and restructuring charges, together with a £50m legal settlement. The top line benefited from higher precious metals prices, although they also impacted working capital outflows. Operating performance for 2019 is expected to be in line with the group's medium-term guidance of mid-to-high single-digit growth, but revenues are expected to take a £41m knock through unfavourable currency translations.  

Morgan Stanley gives a price target of 3,900p a share using a blended average of its discounted cash-flow and sum-of-the-parts valuations.