Johnson Matthey looking to exhaust engine opportunities

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  • Increase in the dividend following the completion of the share buyback program
  • Part of the money recovered from the sale of the battery materials division

A slimmer Johnson Matthey (JMAT) hopes global trading conditions will improve this year even as the auto sector struggles to maintain supply chains due to war in Ukraine and lockdowns in China.

The first earnings announcement under new chief executive Liam Condon coincided with the end of the company’s costly foray into electric vehicle battery manufacturing, selling the division for £56million. to two buyers having been confirmed. The announcement of the sale in November put a value of £314m on the split. The company also sold its healthcare division, for £325m, during the period in a soon-to-be-completed deal, as well as advanced glass technologies for £178m.

Johnson Matthey must now show both margin improvement thanks to the performance of the catalytic converter business (via the clean air division) and also the growth of the hydrogen division, which is the rising technology that the board of directors supported to take the company beyond the internal combustion engine of vehicles.

This margin push involves moving catalyst production from the UK to Poland and Macedonia, as inflation and chip shortages hit demand. On an underlying basis, the operating margin increased from 11.2% to 12.3% for the division.

The Efficient Natural Resources Division, which covers platinum group metals (PGM) recycling and the production of chemical catalysts for fuel manufacturers, saw its underlying operating profit rise 30% from the previous year. last year thanks to high MGP prices.

Even as governments and automakers consider phasing out petrol and diesel cars, Johnson Matthey said opportunities will continue to come from this space. “Clean air will remain an important business over the next decade, even as the world moves toward low-carbon technologies,” Condon said.

Over the next three years, this margin chase will look like a £150m-a-year cost-cut (at a cost of £100m), with capital expenditure of around £1bn. during the same period. The strategic review also set the dividend payout rate at 40% to bring the dividend back to pre-Covid-19 levels (total dividend in 2019 was 85.5p).

Analysts are broadly optimistic that the company will exceed its pre-pandemic cash profit levels. Consensus estimates put 2023 cash profit at £745m, a slight increase from 2022, although the margin is expected to remain at 18-20% for a few years.

This is a clear strategy – doing more of the same but becoming more profitable, essentially – in which we see short to medium term gains as the auto industry returns to full capacity. We still have long-term questions on Johnson Matthey’s strategy but, for now, it looks promising with a consensus PE ratio of 10. Back to long.

Last seen IC: Hold, 2,177p, Nov 24, 2021

JOHNSON MATTHEY (JMAT)
ORDER PRICE: 2 201p MARKET VALUE: £4 billion
TO TOUCH: 2,201-2,204p TOP OF 12 MONTHS: 3 252p LOW: 1650p
DIVIDEND YIELD: 3.5% P/E RATIO: n / A
NET ASSET VALUE: 1336p NET DEBT: 35%
Year as of March 31 Turnover (in billions of pounds sterling) Profit before tax (millions of pounds sterling) Earnings per share (p) Dividend per share (p)
2018 10.3 320 155 80.0
2019 10.7 488 215 85.5
2020 14.6 305 132 55.6
2021 15.4 224 107 70.0
2022 16.0 195 -52.6 77.0
% change +4 -13 +1
Ex div: June 9
Payment: August 2nd
*Includes intangibles of £635 million or 348 pence per share


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