Johnson Matthey Sees Platinum-Deal End a Catalyst for ChangeThomas Biesheuvel and Andrew Noel
Johnson Matthey Plc is using the end of a longstanding precious metals supply agreement with Anglo American Plc as a means to kick its 150-year-old platinum habit.
The British maker of a third of all auto catalysts as well as cancer-drug ingredients and catalysts for methanol plants will outline the potential for new markets at an investors’ meeting this week, Finance Director Robert MacLeod said in an interview. Opportunites for Johnson Matthey, with a market value of 6.7 billion pounds ($11 billion), exist in shale gas as well as treating industrial wastewater, he said.
Having enjoyed a discount rate for platinum group metals from an Anglo unit for 21 years, in return for marketing duties, Johnson Matthey is buying supplies on the spot market this year. The end of the accord will result in 35 million pounds in lost annual sales, and Johnson Matthey used a strategic review three months ago to focus more on markets less tied to its platinum past.
“The word I would use is liberating,” MacLeod said in an interview at the company’s headquarters in London. “We’re taking a broader perspective. Rather than focus on PGMs we have to focus on Johnson Matthey.”
Shares of the company advanced 1.8 percent to 3,302 pence in London as of 8:55 a.m.
Evgenia Molotova, an analyst at Berenberg, increased her earnings estimate for this year by 4.9 percent, and by 2.5 percent for next year, ahead of the capital markets day. The company will benefit from a recovery in the European auto market, and investors underestimate the potential for catalyst demand in petrochemical markets. Additional prospects lie in food packaging and purification, Molotova said.
The company’s history is steeped in precious metals, having started out as an assayer of gold in 1817, and later becoming an official refiner to the Bank of England in the mid 19th century. Its tie to platinum came in the 1860s, and Johnson Matthey went on to create the first catalyst to control vehicle pollution in 1974.
The company, which competes with BASF SE, Albemarle Corp. and Umicore SA, now has about one-third of the catalytic converter market. Its agreement was with Anglo American Platinum Ltd.
Fuel Cells, Batteries
Among the earth’s rarest elements, platinum and palladium are used to bring about chemical reactions, and together businesses related to the precious metals, including autocatalysts, generate about 70 percent of Johnson Matthey’s 2.68 billion pounds in annual turnover.
Chief Executive Officer Neil Carson is currently looking at four or five new business areas, including battery materials and fuel cells. Target markets are characterized by complex chemistry that provides high barriers of entry, with the potential to generate at least 200 million pounds in sales for the company, MacLeod said.
The project looking into water treatment is in the “early days,” with a focus on research and development, according to MacLeod. Within active pharmaceutical ingredients, Johnson Matthey will specialize in complex, niche drugs that are coming off patent rather than compete in the arena for blockbusters.
MacLeod said while there is “good growth” in emission-control technologies as legislation on pollution tightens around the world, the meeting in London on Jan. 30 will also be an opportunity to discuss growth drivers for process technologies such as the supply of catalysts for methanol, ammonia and hydrogen markets.
“It’s almost always going to be niche, though those niches could be very big,” the financial director said.
Johnson Matthey almost a year ago paid about $161.4 million for Formox AB of Sweden to expand in catalysts for formaldehyde and the petrochemical market. No major transactions are planned and the company has to remain choosy about which asset to target because of its high valuation, MacLeod said.
The stock has advanced 38 percent on London’s benchmark FTSE100 index in the past 12 months, meaning the company trades at 17.5 times next year’s earnings, compared with 13.5 times the Stoxx 600 Chemicals Index, according to Bloomberg data.
“Investors are very focused on the swathe of new industrial capex globally, and especially in Asia, and Johnson Matthey has a strong technological franchise and leadership in the provision of catalyst technology in these areas,” said Martin Evans, an analyst at JP Morgan.
Not all new business ideas will work, MacLeod said.
Johnson Matthey abandoned a foray into catalysts for reducing the emissions from coal power stations after an upsurge in local competition. The opportunities in process technologies stem from security of energy supplies rather than from environmental legislation.
“I would be amazed if all four or five businesses worked,” MacLeod said. “If you can’t keep taking your technology forward you’ll lose your lunch.”