There aren’t many instances when the share price of a leading FTSE 250 constituent rises by a third at the ringing of the bell. But that’s what happened to Johnson Matthey’s (LSE: JMAT) stock yesterday (22 May) when it agreed to sell its Catalyst Technologies business to Honeywell in a £1.8bn deal.
The business has been in divesting mode since the new CEO took charge back in 2022. It had already sold its battery material and medical device components businesses, but this deal dwarfs them. Having long been relegated from the FTSE 100, could a new streamlined business now be primed for a major comeback?
Pressure mounting
The sale of its Catalyst Technologies business comes as something of a surprise to me. In its 2024 annual report it described it as “a core growth driver”. So what changed? The simple answer is: pressure from an activist investor.
Last January, its largest shareholder Standard Investments launched a scathing attack on the board, accusing it of a “continued lack of urgency and incapacity” in arresting its poor share price performance.
The spat eventually went public after the company responded to the claims in an open letter. To me, the business had simply overstretched itself. The process technology it designed and licenced for the energy and chemicals sectors was way outside its core competencies of Platinum Group Metals (PGM) and catalytic converters.
Catalyst Technologies
The sale of Catalyst Technologies is great news for shareholders. It sold it on a cash and debt-free basis at a transaction multiple of 13.3 times earnings before interest tax depreciation and amortisation (EBITDA).
The cash return to shareholders will be considerable at £1.4bn. This equates to 800p per share and represents 88% of the expected net sale proceeds of £1.6bn.
I think the reaction by the market indicates strong approval of the deal. The cutting edge technology is used to create products for transportation fuels, fertilisers, wood products, paints, coatings and polymers. The fact that Honeywell was prepared to pay such a premium highlights the technology’s growth potential. It was simply in the wrong hands to realise that potential.
Streamlined business
After all the divestments, what’s left is PGM and Clean Air. The former is a well-established division with number one positions globally. But it’s Clean Air that really interests me.
A few years ago, its catalytic converters manufacturing hub was seemingly in long-term decline. Not now though. Over the past few years, production of battery electric vehicles has slowed considerably. At the same time, the regulatory environment has softened toward the traditional internal combustion engine (ICE).
The company forecasts that globally an additional 19m light-duty ICE vehicles will now be produced between 2027 and 2034. Each will need cutting-edge catalytic converters. Clean Air sales are expected at more than £2bn in 2027/28, with 90% of that business already won.
At the moment it feels to me that the business has turned a corner. But I’m not in a rush to buy into the stock just yet. I want to do more research. Yet with the share price nearly half what it was back in 2021 (despite the price rise), it could be one for an investor seeking a long-term recovery play to consider.
