INSIGHT: Market wakes up to Johnson Matthey

16 January 2007 17:11  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--Johnson Matthey has piqued investor interest over the past two days with the shares at one stage in London on Monday up 3.5%.

The odds on a possible takeover bid for the UK based precious metal refiner and catalyst maker are low. So it looks as though investors are latching on to the company's stronger growth prospects and asking more questions about what will be done with its growing cash pile.

The company has attracted more attention following the widely appreciated disposal of its ceramics business in December.

The divestment will give the group a more focused growth story and what some analysts have called a seriously under utilised balance sheet. The shares traded higher again on Tuesday and at 15:29 GMT were at 1,498 pence, up 0.67% on the day.

Some nifty portfolio work has lifted Johnson Matthey’s growth profile and the ceramics divestment – to Pamplona Capital Partners for £153m – has focused attention on opportunities in the highly lucrative catalysts sector alongside a possible revival in pharmaceuticals.

Sales growth in the first half of the 2006/07 financial year, the most recent reporting period, was high – at 17% higher excluding precious metals trading – but did not fully reflect the group’s potential. Catalysts profits were up 9% and operating profits ahead by 11%.

Johnson Matthey has about a 31% share of the global market for catalysts that remove hydrocarbons, carbon monoxide and noxious nitrogen oxides from vehicle exhausts. Catalyst demand growth will be higher than the rate of growth of the global auto industry as new emission control legislation are introduced.

Engine exhaust catalyst growth will ride on the back of increased sales of diesel automobiles in Europe and increased diesel use in North America.

European heavy duty diesel legislation applying to about 1m vehicles was in place from 1 January this year. Johnson Matthey estimates total market sales of $700m excluding precious metals by the end of 2008.

By 2010 China, India and Brazil will have adopted the same standards affecting 1.5m vehicles. By 2024 the market could be worth $3bn including off-road vehicles in the US and European Union (EU).

Last year the company bought Davy Process Technologies which gives its more weight in process catalyst technologies. The company can be expected to make gains in this area in the current high priced oil environment as gas and coal-to-liquids and chemicals technologies are developed.

Further down the line potentially it has a strong foothold in carbon sequestration and in the emerging hydrogen economy.

Following the ceramics sale, put simply Johnson Matthey is a good bet.

How the company will use its additional firepower – the war chest has been estimated at about £750m – remains to be seen. But share buy-backs and acquisitions have been suggested. The company meets analysts and investors in a series of events next week.

($1 = €0.77/£0.51)

By: Nigel Davis
+44 20 8652 3214

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