Johnson Matthey (LSE: JMAT) is a value stock that has gone from forgotten to flying in a matter of weeks. The FTSE 250 speciality chemicals firm has rocketed 32% over the past month. That follows a dismal run though, which had brought the share price to a 10-year low. Over 12 months, it’s up 7%.
I’ve kept half an eye Johnson Matthey since it tumbled out of the FTSE 100 in September 2023. It was hammered by lower platinum prices, a cooling of investor appetite for ESG stocks and mounting costs.
Recovery stock
I flagged it as one to watch in December, when it looked bruised and undervalued, trading on a price-to-earnings ratio of under 10 and yielding 5.5%.
Johnson Matthey has spent the last two years simplifying the business, cutting costs and focusing on what it does best.
While the business was grinding away behind the scenes, pressure ramped up from outside. In January, US activist investor Standard Investments turned up the heat, pushing for a board shake-up and calling for urgent change. Johnson Matthey publicly pushed back, insisting it was on the right path, but the message was clear: the clock was ticking.
The boardroom was refreshed in February, but things didn’t get any easier. In April, the market was rocked by Donald Trump’s tariff threats, which didn’t help.
Then on 22 May, the story changed. The company announced it would sell its Catalyst Technologies division to Honeywell for £1.8bn, generating net proceeds of £1.6bn. Of that, a bumper £1.4bn will be returned to shareholders once the deal completes.
Cleaner and leaner
Alongside the sale, full-year results showed pre-tax profit had nearly tripled to £486m. Management said the business was now focused on Clean Air and PGMS (precious group metal services), with a tighter grip on costs and stronger cash generation, despite “challenging market headwinds”.
Investors liked what they heard. The share price jumped 28% in a single day.
A week later, analysts at Berenberg raised their target price to 1,800p. They said Johnson Matthey had successfully navigated a fork in the road. That’s marginally above today’s 1,776p. So let’s not get too excited.
Berenberg described the company’s new structure as having a “brutally effective” cash-generating focus. And it welcomed the end of strategic confusion between its growth and income priorities.
Still room to grow
Johnson Matthey’s Clean Air division has enjoyed a reprieve, as the net zero backlash slows the switch towards electric vehicles. That gives it a few more years of selling catalytic converters to petrol-based cars. But at some point, the shift towards alternative propulsion systems will come. Shifting its focus to other growth areas like hydrogen technologies brings new risks.
The first leg of any recovery is usually the most dramatic, and Johnson Matthey has delivered on that front. The shares still trade at less than half their 2018 peak, though, which suggests there could be more room to grow.
With a modest price-to-earnings ratio of just 11.7 and a healthy 4.4% trailing yield, the stock still looks like a potential bargain. The company is smaller, tighter and, crucially, back to doing what it knows best.
Investors might consider buying at today’s levels, but should keep in mind that future gains are more likely to come gradually, not in another explosive burst.
