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Johnson Matthey Rides the Electric Car Boom

FTSE 100 chemicals firm has capitalised on the global move towards electric vehicles with news of a £200 million investment

James Gard 22 September, 2017 | 3:34PM

Electric car

Shares in FTSE 100 chemicals firm Johnson Matthey (JMAT) have surged this week as it updated the market about its investments in electric vehicle battery technology. In a Thursday capital markets presentation, the company said it would invest £200 million from next year into lithium electric car batteries, a market that it expects to be worth $30 billion if electric car ownership hits 10% of all cars sold. Robert Macleod, chief executive, said that the investment would help “create value and a cleaner and healthier world”

Johnson Matthey built up its business making catalytic convertors for petrol and diesel vehicles, so this week’s announcement has reassured investors that the company is gearing up for the next phase in car technology. A range of global car companies have made pledges to make electric cars by a certain date: four-star rated Volkswagen (VOW) will build an electric version of all its models by 2030, and Volvo, Honda (7267) and Jaguar Land Rover have made similar announcements. Jaguar Land Rover will offer an electric choice for its cars much earlier, by 2020. Car-makers will still manufacture non-electric models from these dates, rather they will offer customers the option of buying an electric alternative for each model.

The UK Government itself has set a deadline of 2040, after which no petrol and diesel cars will be manufactured. But hybrid vehicles will still be on the roads from this date. France will also ban pure petrol and diesel cars from sale in 2040. Scotland’s deadline is eight years earlier with the ban starting in 2032.

The company's share price is up from below £30 at the start of the week to nearly £35 after a 14% rise on Thursday, reversing a downward trend seen since October 2016. Larger rival Umicore (NVJN), which is based in Brussels, Belgium, has seen its shares double since January 2016 to around €67.36.

A number of funds with a focus on environmental, social and governance (ESG) hold Johnson Matthey. These include investment trust Jupiter Green (JGC) and open-ended fund F&C Responsible UK Equity Growth Fund, which has a Morningstar Sustainability Rating of four globes - meaning it scores above average on ESG grounds.

High-profile investment trusts Witan (WTAN) and City of London Investment Trust (CTY) hold the company, as does Henderson Opportunities Trust (HOT).

Open-ended funds holding Johnson Matthey include Jupiter UK Alpha, which has an average Morningstar Sustainability Rating of three globes.

Artemis UK Special Situations, which has a Bronze Rating from Morningstar, also owns the company.

Analyst Views

After Johnson Matthey’s first-quarter trading statement, Morningstar equity analyst Rob Hales reduced its fair-value estimate for the company’s shares from £31.50 to £29, but kept the “narrow moat” rating, which means the company has a slim competitive advantage over its peers.

“We believe the shift to petrol from diesel in European light-duty vehicles is happening faster than we previously expected. As European light-duty diesel catalysts are highly profitable for Johnson Matthey, this negatively affects our valuation.”

On a bullish point, Hales said that the company’s battery technologies business – which was the focus of this week’s announcement – “is nearing break-even and should stop being a drag on profitability”. He added that “Johnson Matthey is well positioned to benefit from current megatrends such as increasing environmental concerns”.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Artemis UK Special Situations R Acc5.85 GBP1.01
BMO Responsible UK Equity 2 Acc371.80 GBP0.03
City of London Ord420.50 GBX0.84
Henderson Opportunities Ord917.16 GBX0.57
Honda Motor Co Ltd2,933.00 JPY0.12
Johnson Matthey PLC3,235.00 GBX2.08
Jupiter Green Ord191.50 GBX0.00
Jupiter UK Alpha13,829.59 GBP0.81
Umicore SA32.83 EUR-1.20
Volkswagen AG161.35 EUR0.75
Witan Ord219.00 GBX0.46

About Author

James Gard  is content editor for Morningstar.co.uk

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