Shareholders of Johnson Matthey (LSE:JMAT) are likely disheartened today since the FTSE 100 stock is down over 18%. Its plummeting price comes as a result of a disappointing announcement by management. And, consequently, all the gains made so far this year have been wiped out. That places the 12-month return at -7%.
So, what exactly happened? And is this a buying opportunity for my portfolio?
Competitive pressures are too high
As a quick reminder, Johnson Matthey designs and develops chemical and technological solutions for a wide range of industries. Its mission is to “enable cleaner air, improved health and the more efficient use of our planet’s natural resources”. The sectors it serves vary from the Oil & Gas industry to the Automotive. And it’s the latter that appears to be the catalyst of the FTSE 100 stock’s fall this morning.
Despite the rise in demand for electric vehicles (EVs) and, in turn, battery metals, management announced it would be exiting this space indefinitely. Given this segment’s seemingly explosive growth potential, this is quite a surprise, and I can understand why investors are disappointed.
An internal review revealed that reaching the next set of critical milestones will be a quite expensive endeavour. And with a vast amount of competition building up, management doesn’t see a viable path to creating long-term value for shareholders. As a result, it’s ceasing all further investment in the space and intends to sell off this division in the near future.
When combining this with the announcement that CEO Robert MacLeod is stepping down in 2022 and the full-year trading outlook likely to fall at the lower end of guidance, the double-digit decline of the Johnson Matthey share price makes a lot of sense.
Is this FTSE 100 stock now on sale?
While watching investments crash is never fun for shareholders, it can sometimes create buying opportunities. So is Johnson Matthey on sale? Possibly.
The battery metal division to be sold off is worth roughly £340m. Under the leadership of future CEO Liam Condon, management intends to use the proceeds of the sale to accelerate its investments into hydrogen technology as well as solutions for decarbonising the chemical supply chain.
Hydrogen technology is getting more attention as acquiring the element is getting cheaper and has several advantages over EVs. Meanwhile, as governments worldwide are raising carbon taxes, firms reliant on chemical supplies are more likely to seek out Johnson Matthey’s services.
Time to buy?
I can’t deny that the exit from the battery metal space is a bit of a shock, especially given the firm’s success with its eLNO material. But I think this is far from a catastrophe, as many investors seem to believe.
Having said that, I’m keeping this FTSE 100 stock on my watchlist for now. Its half-year report is due to come out on 24 November. And it should provide a much clearer picture of the state of the business and its outlook.
