FTSE 100 stock Johnson Matthey (LSE: JMAT) is best known for its emission control systems. Through these, it helps achieve clean air. But through its new forays, it may well make a mark in green energy too. That alone is a good reason for me to consider the stock.
Promoting cleaner air, supporting green tech
More than 60% of its revenues come from its clean air division, which supplies catalyst systems that help control vehicle emissions. Its second biggest segment is efficient natural resources, under which it provides catalysts that allow customers to produce chemicals sustainably. It also recycles platinum group metals under this segment.
But I think most promising is its new markets segment, which can reduce the automotive industry’s dependence on fossil fuels. Through this segment, Johnson Matthey provides materials for electric vehicles (EVs) batteries. This is still in early stages, but as per the company’s latest update, it is progressing well. Its first commercial plant for the same is currently under construction in Poland.
Further, it already produces hydrogen fuel cells, which also help in reducing emissions. It is also now foraying into what it calls blue and green hydrogen production technologies, which use hydrogen for replacement of natural gas as a fuel source. This segment is still quite small, accounting for less than 10% of its revenues, but I reckon that it has good prospects too.
I think it is safe to assume that continued need for emission control, will drive the company’s demand in the foreseeable future. But it also has its future planned out.
I mean, just considering the optimistic projections for EV sales over the next decade alone is indicative of how much scale up is possible. Additionally, the US is channeling big public spending into the development of the green economy. The UK too has ambitious plans to enable a green industrial revolution.
Slowing profits, falling share price
These developments can hold Johnson Matthey in good stead, even though it just reported weak profits. For the year ending March 31, the company reported a decline in operating profits of 17%.
Investors are clearly downbeat about these numbers, evident from the almost 4% fall in its share price as I write. But this decline is limited compared to the 40% increase it saw in the past year. In fact, the Johnson Matthey share price was quick to bounce back from last year’s stock market crash and is now at levels last seen way before the pandemic in 2019.
The downside to this is that it now looks more expensive than many other stocks, which were impacted far more by the pandemic. I am also a bit disappointed by its cautious outlook for the current financial year.
My takeaway for the FTSE 100 stock
I think these downsides are well worth considering because I aim to make capital gains on my stock purchases. In fact, I have raised this concern previously about the company. At the same time I cannot deny that its long-term prospects look hugely improved now. I would consider buying it.
Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.