Rough ride ahead as JMAT seeks new course
JOHNSON Matthey makes catalytic converters, the clever bits in car exhausts that strip out the worst emissions. The shift to electric vehicles means these could become obsolete.
JMAT aimed to become a battery material manufacturer. All seemed well until management scrapped the strategy out of the blue last week. To say the market was taken by surprise is an understatement, with the shares dropping 18 per cent.
The group had been singing the praises of its eNLO battery components for years. If it’s not worth JMAT’s time, it’s not clear whether the group will find buyers for the business at a good price.
On the bright side, the change should not disrupt current operations. The entire New Markets division, where the business is housed, makes up just 1.8 per cent of underlying operating profits.
The rest comes in near equal parts from Efficient Natural Resources and Clean Air.
Clean Air is the catalytic converter business, which isn’t going to dry up immediately. And while Natural Resources recycles old converters and sells on platinum group metals, it also operates in non-automotive markets.
JMAT’s finances are solid, with Clean Air generating steady cashflow. With potential profits from the battery parts sale, it’s got considerable financial firepower. But where will it take aim?
The need for automotive catalysts won’t evaporate overnight, but time is of the essence. As we’ve seen, embarking on a new business is costly and there are no guarantees.
Management has suggested a push into hydrogen fuel cells and carbon reduction in the chemicals industry but no clear plans have been laid.
CEO Robert MacLeod’s departure adds to the uncertainty. His replacement, Bayer’s Liam Condon, will have his work cut out as he takes the helm of a ship without a clear direction. Perhaps a fresh pair of eyes could be just what JMAT needs.
Investors though should prepare for more volatility ahead as the group charts a new course.
“This article is designed for investors who make their own decisions without advice, if unsure whether an investment is right for you, you should seek advice. Shares can rise and fall in value so you could get back less than you invest.”