Johnson Matthey Plc (JMPLF) Q4 2025 Earnings Call Transcript

Johnson Matthey (JMPLF) announced the sale of its Catalyst Technologies business to Honeywell for £1.8 billion, with £1.4 billion to be returned to shareholders, equating to roughly £8 per share. CEO Liam Condon highlighted the improved performance of Catalyst Technologies, citing margin doubling and profitability tripling over the past three years as key to the compelling valuation. Looking ahead, Johnson Matthey will focus on its core Platinum Group Metals (PGM) and Clean Air businesses, projecting mid-single-digit CAGR in operating profit and a sustainable £200 million annual cash return to shareholders from fiscal year 2027 onwards, with the Clean Air division targeting 16-18% margins by fiscal year 2028.

Analysis

Johnson Matthey (JMPLF) has announced a significant strategic repositioning centered on the divestiture of its Catalyst Technologies (CT) division to Honeywell for £1.8 billion, a valuation representing approximately 13-15x EBITDA and circa 80% of JMPLF's market capitalization for less than 20% of its business. This sale, driven by CT's substantial performance improvement including a margin expansion from 7% to 14% and a tripling of profitability over three years, is expected to yield net proceeds of £1.6 billion, with £1.4 billion earmarked for shareholder returns (around £8 per share). The transaction is anticipated to close in H1 2026. Post-divestiture, Johnson Matthey will concentrate on its core Clean Air and Platinum Group Metals (PGM) Services businesses. The Clean Air division, which saw margins improve from 8.7% in FY22 to 11.8% in FY25 (13.2% in H2 FY25), is targeting 14-15% margins in FY26 and 16-18% by FY27/28, with projected sales exceeding £2 billion (90% already secured). The PGM Services segment is undergoing a critical upgrade with a new world-class refinery, expected to commence commissioning by early 2026 and be fully operational by FY27, which is key to unlocking significant cash generation. PGM targets sales of approximately £450 million and a 30% margin by FY27/28 with near 100% cash conversion. For FY25, JMPLF reported a 5% rise in underlying operating profit despite a 2% LFL sales decline. The 'New JM' aims for mid-single-digit CAGR in operating profit through FY28, sustainable free cash flow of at least £250 million annually by FY27/28, and annual shareholder returns of £200 million from FY26/27 onwards. Management is also focused on cost discipline, including addressing £17 million in stranded costs from the CT sale and targeting further overhead reductions, alongside significant CapEx reduction and working capital improvements projected at over £250 million in the next two years. The Hydrogen Technologies unit is expected to reach breakeven at a run-rate by Q4 FY26.

Key Decisions for Investors

• The sale of Catalyst Technologies at a compelling valuation of £1.8 billion provides immediate value crystallization; investors should factor in the planned £1.4 billion capital return (circa £8 per share) when assessing their investment thesis.
• Monitor closely the execution and commissioning timeline of the new PGM refinery, anticipated to be operational by FY27, as its success is critical for achieving the targeted step-change in group free cash flow generation (to £250 million+ annually by FY27/28) and PGM segment margins of ~30%.
• Evaluate the achievability of the Clean Air division's margin expansion to 16-18% by FY27/28 and the group's ability to deliver the committed £200 million in sustainable annual shareholder returns from FY26/27, which are key to the future investment narrative.
• Consider the potential for a valuation re-rating of the refocused Johnson Matthey, driven by a simplified structure, enhanced cash returns, and reduced capital intensity, while remaining attentive to management's execution on cost-saving initiatives and operational targets in the core businesses.