EUR 850.00 For Business Accounts Only

Morningstar | Near-term profit outlook is relatively flat for Johnson Matthey, but growth will return.

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 10% of sales. Roughly 60% of sales are targeted at the automobile sector. The clean air segment is the company's largest (62% of EBIT) and is the foundation of our narrow moat rating. The segment, a global leader in a highly concentrated market, manufactures autocatalysts 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 autocatalysts to move into secular decline, we still see more than a decade of high returns for the business.Other core segments include efficient natural resources and health, which contribute 32% and 10% of EBIT, respectively. Efficient natural resources manufactures industrial catalysts for the chemical and oil and gas sectors, licenses technology for chemical processing, and includes the precious metals refining and manufacturing business. Given relatively low oil prices and overcapacity in the chemical sector, this segment will be challenged in the next few years. 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. Johnson Matthey is preparing for the post-autocatalyst world by developing a cathode materials business for electric vehicle batteries. The company asserts that its new enhanced lithium nickel oxide, or eLNO, cathode materials have best-in-class performance, which should drive strong growth in the company's new markets segment (2% of EBIT) starting in fiscal 2022.