Related
news
Shares Magazine
For more than a decade, science and technology business Johnson Matthey has flattered to deceive on the stock market. The perceived threat to its catalytic convertors from the shift to electric vehicles (EVs) among the main factors weighing on sentiment.
But the company is now at a big inflexion point. The sale of its Catalyst Technologies business to US industrial giant Honeywell completed in mid-August 2026 with £800 million of the £1 billion proceeds returned to shareholders through a special dividend.
Catalyst Technologies licenses specialised process technology and manufactured components used in sustainable fuels and other areas.
What does Johnson Matthey do?
The slimmed down Johnson Matthey, which has enjoyed a share price recovery from the 2025 lows, retains a key focus on catalytic converters which form the core of its largest division – Clean Air. The more uncertain pace of the transition of EVs and the popularity of hybrid options means demand has proved more resilient here than anticipated and self-help measures have helped boost margins.
Another remaining division is PGM Services. A leading refiner of platinum group metals, a family of six rare, precious, and chemically related metallic elements known for their high melting points, exceptional corrosion resistance, and powerful catalytic properties. Catalytic being a process where a substance speeds up a chemical reaction without being used up or permanently altered by it. Its smaller Hydrogen Technologies arm is focused on components for green hydrogen.
The retained businesses are arguably more established, and Johnson Matthey is looking to lean into its expertise in PGMs, while pursuing efficiency gains and prioritising cash generation.
The company is targeting £250 million in annual free cash flow and £200 million in shareholder returns from the March 2028 financial year onwards. It will hope achieving these goals can win over a sceptical market.
Paul Wood, chief investment officer of Woodhill Asset Management, observes: “After the disposal, Johnson Matthey will be a much more focused business built around its specialist expertise in platinum group metals. Its remaining operations serve a wide range of industrial and environmental applications where the company has long-established technical advantages and strong market positions.
“While analysts currently expect only modest revenue growth over the next few years, earnings per share are forecast to increase materially, driven largely by the substantial reduction in the number of shares outstanding through the buyback programme.”
What are the main risks facing the business?
Though the threat is not as existential as it seemed to be at some point, growing adoption of EVs remains a challenge for Johnson Matthey. EVs do not need catalytic converters and a previous attempt to adjust by shifting into manufacturing its own EV battery materials ended in failure.
A longer-term drop in scrap catalytic converters would also remove a major source of the recycled platinum, palladium and rhodium refined by PGM Services.
However, Johnson Matthey expects demand for converters to continue well into the 2030s thanks to the aforementioned popularity of hybrid vehicles. The heavy-duty truck and commercial transport markets have also been slower to go electric thanks to weight and range constraints.
For those remaining vehicles with internal combustion engines, emissions regulations are getting stricter which should drive higher margins and value per vehicle, potentially offsetting volume declines.
In terms of other risks, the company is also investing in a new UK refinery and has had issues at its older US refinery. Getting the new refinery up to speed and improving the existing facility come with some operational risk.
To add some diversification the company has unveiled the $360 million acquisition of data centre focused gas turbine catalyst maker Cormetech.
Berenberg analyst Sebastian Bray says this deal helps address the ‘managed decline’ narrative around the shares. “We estimate that stationary emissions control, primarily for data centres, could account for over 10% of group earnings by 2029,” he says.
CEO Liam Condon has been in post for four-and-a-half years having joined from German chemicals firm Bayer to help revive the business after its failed battery materials effort.
What about the valuation?
Based on consensus earnings forecasts for the March 2028 financial year, the company trades on a price to earnings ratio of around 11 times earnings and offers a dividend yield of 3.8%.
The company’s closest lookalike on the stock market is Belgium’s Umicore which is a global advanced materials and recycling group. It trades at a premium to Johnson Matthey at 13 times consensus forecast 2027 earnings.
If the valuation remains depressed Johnson Matthey might attract takeover interest, Woodhill’s Wood adding that the company, in its more simplified state, “could prove an attractive acquisition target for a larger industrial or speciality chemicals group”.
Tom Sieber: Content Editor
Tom Sieber is AJ Bell's Content Editor. He was previously the Editor of Shares Magazine. He has been with the business since 2012.
Tom is a regular contributor to the AJ Bell Money & Markets...