Shares in chemical company Johnson Matthey (JMAT) drifted 0.98% to £21.60, following the announcement of first half results that revealed a loss which reflected a write down in assets following the group’s decision to exit the battery materials business.

In many respects today’s first half results have been pre-empted by last week’s profits warning, and news that Chief Executive Robert MacLeod will be stepping down next February.

News that the group has sold its advanced glass technologies business to Fenzi Holdings for £178 million, will increase speculation that the company is now a private equity bid target.

For the half year ended 30 September, pre-tax losses were £9 million compared with a loss of £26 million year-on-year, while revenues were up 23% to £8.59 billion lifted by higher average precious metal prices.

The interim dividend was raised by 10% to 22.0 pence per share. Looking forward, the company has maintained its current guidance. It has announced a £200 million share buyback programme that will commence in the new year.

STRATEGIC QUAGMIRE

Johnson Matthey needs to find a new strategic rationale following its decision to abandon plans to develop its lithium battery business.

This was key to replacing its catalytic converter business for diesel cars that accounts for two-thirds of group sales. The group had intended to expand this business with a new factory in Finland.

The company now appears to be pivoting to hydrogen as the new area of strategic expansion.

It is planning a new £50 million hydrogen fuel cell gigafactory, that will produce protein exchange membranes, key components in hydrogen fuel cells.

This strategy builds on its current expertise in making blue hydrogen from gas and green hydrogen from renewable energy.

 PRIVATE EQUITY TARGET

Recent share price weakness coupled with the lack of a clear strategic focus may prompt interest from private equity firms.

It has been estimated that the cashflow from the catalytic converter business will generate approximately £4 billion over the next decade.

This provides an appealing incentive to private equity firms who might ‘milk’ the cashflow and dispose of the other businesses.

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Issue Date: 24 Nov 2021