Johnson Matthey PLC (LSE:JMAT, Financial) is a U.K.-based company that provides sustainable technologies, including those related to clean air and automotive applications, and is highly dependent on precious metals, especially platinum group metals.
The company's strategy is focused on leveraging its PGM expertise and technology to accelerate the world's transition to net-zero greenhouse gas emissions, as many of the technologies necessary for decarbonization rely on PGMs as catalysts. Johnson Matthey is also involved in several large-scale blue hydrogen projects and has partnerships with companies developing sustainable fuels and low-carbon solutions. The company aims to become a market leader in high-value performance components that are essential to power fuel cells and green hydrogen electrolyzers. As such, its motto, "Inspiring science, enhancing life," seems appropriate.
In terms of operations, Johnson Matthey has two main segments: Clean Air and Hydrogen Technologies. The Clean Air segment, which is the largest business, specializes in catalytic converters for heavy and light-duty vehicles powered by internal combustion engines. However, supply chain constraints and the lag in recovering cost inflation have impacted the segment's profitability in recent years. The Hydrogen Technologies segment sells catalyst coated membranes that are a critical component of fuel cells and electrolyzers. This segment has seen a doubling in sales due to the increasing popularity of hydrogen fuel cells.
First-half results
For the first half of fiscal 2023, Johnson Matthey's group sales increased by 5%, which can be attributed to higher prices that were implemented to offset inflation. The company's Clean Air segment showed a 2% increase in sales due to higher prices that helped balance out lower volumes. Additionally, supply chain bottlenecks eased, which previously were caused by Covid-19 lockdowns in China, the Ukrainian war and the semiconductor shortage in the auto industry.
In the Light Duty Diesel business, Johnson Matthey experienced a 1% increase in sales, which was in line with the overall market. While sales were mostly constant, a decline in Europe (due to the semiconductor shortage) was offset by satisfactory performance in the Americas. The Light Duty Gasoline segment showed a 3% increase in sales, underperforming with the overall global market. Growth in Asia was seen after lockdowns, while Europe was broadly flat and there was strong growth in the Americas.
The Heavy Duty Diesel unit has also experienced a 1% increase in sales, outperforming the overall market. Strong performance was seen in Europe and America, while lower sales were observed in Asia due to lower vehicle production arising from continued pandemic lockdowns in China.
However, the PGM Services division saw an 11% decrease in sales due to lower PGM prices and reduced refinery volumes. In contrast, the Catalyst Technologies segment has saw an 18% increase in sales due to a strong pipeline of sustainable solutions and the winning of seven new licenses.
Johnson Matthey's Hydrogen Technologies segment has experienced a significant increase in demand for fuel cells, resulting in a 130% increase in sales from both existing and new commercial clients. Manufacturing constraints also eased, leading to an increase in volumes. Finally, the Value Businesses segment has recorded a 26% increase in sales, with strong sales in Battery Systems due to e-bike applications.
Outlook
Johnson Matthey's outlook is focused on concentrating on technologies and markets where it has the greatest strengths and competitive advantage, focusing more on value creation, spending more time on core businesses and exiting and selling non-core businesses.
The company is also focusing on recycling secondary PGMs, clean air, catalyst technologies and hydrogen technologies. Governments' implementation of more stringent air quality regulations offers new opportunities for innovative technology, and Johnson Matthey aims to grow its existing business within catalyst technologies, alongside newer opportunities in blue hydrogen, sustainable fuels and low-carbon solutions.
Strategic partnerships with companies such as Plug Power (PLUG, Financial), a cutting-edge green hydrogen, and fuel cell solutions provider, and Enapter, a pioneer and commercial leader in green hydrogen, will also help Johnson Matthey expand its presence in the green hydrogen market. The company aims to become a market leader in high-value performance components that are essential to power fuel cells and green hydrogen electrolyzers and targets more than $247 million of sales in Hydrogen Technologies by the end of 2024-25. Johnson Matthey's leadership team will consider acquisitions, but will be selective in their approach, with a focus on bolt-on deals to acquire technology or accelerate growth in its core businesses.
Valuation
Johnson Matthey has a GF Score of 82 out of 100, indicating good outperformance potential.
The GF Value Line indicates the stock is fairly valued and the company has a Piotroski F-Score 5 out of 9, so we can conclude the stock does not classify as a value stock. However, the future opportunities available to Johnson Matthey give it plenty of growth options. With an Altman Z-Score of 3.67, the company has the financial strength to fund these growth opportunities.
Taking all of this together, I think Johnson Matthey can be classified as a growth at a reasonable price stock.
Overall, Johnson Matthey's strategy is focused on leveraging its expertise and technology in PGMs to accelerate the world's transition to net zero, with a focus on recycling secondary PGMs, clean air and catalyst and hydrogen technologies. The company aims to become a market leader in high-value performance components that are essential to power fuel cells and green hydrogen electrolyzers and is partnering with other companies in the industry to expand its presence in the green hydrogen market. By focusing on its core businesses, exiting non-core businesses and expanding its presence in high-growth markets, the company is well-positioned for future success.
Johnson Matthey reports full-year results for 2023 on May 25.
