Business Strategy and Outlook
Johnson Matthey is a U.K.-based specialty chemical company with unique expertise in catalysts, chemicals, and manufactured products derived from platinum group metals, or PGMs. Sales are fairly concentrated in developed markets, particularly Europe and North America. China, growing fast, now accounts for 15% of sales. Roughly 60% of sales are targeted at the automobile sector.
The clean air segment is the company’s largest (51% of EBIT) and is the foundation of narrow moat rating. The segment, a global leader in a highly concentrated market, manufactures auto catalysts for cars and heavy-duty trucks that reduce emissions and improve air quality. Success is primarily dependent on increasingly stringent environmental legislation, which allows the company to develop novel solutions that can be sold at premium prices. While the advent of electric vehicles will ultimately cause auto catalysts to move into secular decline, it is still seen to have more than a decade of high returns for the business.
Other core segments include efficient natural resources and health, which contribute 44% and 5% of EBIT, respectively. Efficient natural resources manufacture industrial catalysts for the chemical and oil and gas sectors, licenses technology for chemical processing, and includes the precious metals refining and manufacturing business. EBIT should fall in the next few years as high PGM prices normalize, but the overall outlook for the segment remains solid. The health segment is a global leader in manufacturing active pharmaceutical ingredients, or APIs, for controlled substances like opiates and amphetamines. Growth will depend on success of the pipeline of new APIs, which is still a few years away.
The company also offers fuel cells, technology for blue hydrogen production, and components for green hydrogen plants
Financial Strength
Johnson Matthey is in good financial health. The model-driven credit risk assessment is moderate. The company targets a net debt (including post-tax pension deficits) to EBITDA ratio of 1.5-2 times. As of September 2020, the ratio stood at 1.6 times. The company’s debt maturity profile is balanced, with a good portion of borrowings having maturity dates more than five years and no major refinancing due in 2020 or 2021.
Bulls Say’s
- The pipeline of increasing global environmental legislation targeting vehicle emissions remains full for the foreseeable future.
- Johnson Matthey’s expertise in hydrogen and fuel cells should enable the company to be a meaningful player when these markets develop.
- Johnson Matthey is positioned to benefit from current megatrends such as increasing environmental concerns and rising wealth in emerging markets.
Company Profile
Based in the U.K., Johnson Matthey is a global leader in production of emissions catalysts for automobiles and trucks. The company also manufactures industrial catalysts for the chemicals and oil and gas sectors, and a variety of other industrial products derived from platinum-group metals.
(Source: MorningStar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
