Shares in chemicals company Johnson Matthey (JMAT) have dropped 3.3% to £32.75 after telling the market it needs a much better second half of the year to meet full year expectations.

In a first quarter trading update ahead of its AGM, the firm said overall sales were flat with growth in its Clean Air division, which makes up 70% of the group’s total revenue, offset by lower sales in two other divisions, Efficient Natural Resources and Health.

Sales in its New Markets division, which the markets seemingly cares about the most given lucrative potential to disrupt the electric vehicle battery market, were also broadly flat.

The company said it expects full year ‘growth in operating performance at constant rates to be within our medium term guidance of mid to high single-digit growth.’

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However, the key thing investors have focused on is Johnson Matthey telling the market to achieve that growth, it anticipates performance to be ‘more heavily weighted to the second half.’

This means the company is likely to have an underwhelming first half of the year, and needs a big uplift in sales in the second half if it is to achieve the full-year results that it told the market it would.

While the firm is still on track, investors tend not to like the term ‘second half weighted’ as it can raise the possibility of a company ultimately falling short of full-year guidance.

Johnson Matthey has been in and out of favour with the market over the past couple of months.

Its share price dropped over 3% to around £30.70 immediately after its full-year results at the end of May, with investors unhappy over progress in the New Markets division despite big rises in overall revenue and pre-tax profit.

Operating profit in the division plunged 85% to just £2m compared to £17m the previous year, raising some doubts over its potential.

The company is developing a technology it calls eLNO, a battery material for electric vehicles (EV) that it hopes will disrupt the market and plans to have in commercial production by 2022.

It has been reported that electric vehicles sales could reach $567bn by 2025, up from $54bn in 2019, so the opportunity set for Jonhson Matthey could be huge if it can get eLNO in production on time.

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Issue Date: 17 Jul 2019