Johnson Matthey break-up looks likely, Berenberg believes

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Johnson Matthey looks odds on to be broken up, according to Berenberg, after the speciality chemicals company’s shock profit warning yesterday.


The disastrous trading update, which revealed that the company plans to sell the battery metals business it was talking up so enthusiastically a few months ago appears to have trigged the decision of Robert MacLeod to retire.


Berenberg believes the appointment of Liam Condon as MacLeod’s successor makes a break-up of the group likely as Condon’s previous employer, Bayer, “is known for portfolio management”.


“We would speculate that the splitting from battery materials will put the company on course for another set of break-ups to extract value,” Berenberg said.


It suggested that three sides of the business could emerge: a “growth” unit consisting of stationary catalysis and hydrogen technologies; a “cash” unit containing the platinum group metals and catalytic converters business; and an “other” strand, focused primarily on health.


Condon is not set to arrive until March of next year and Berenberg expects the company’s shares will remain in limbo until then, which depending on how the market moves could even see the company lose its place in the FTSE 100, which Berenberg believes would be “unhelpful”.


“Nevertheless, there is value in the business – peers in hydrogen trade on over 20x P/S, and it is difficult to conceive of any further bad news,” Berenberg speculated.


German chemicals giant BASF is named by the broker as one of the companies that might be interested in taking the battery metals business off Johnson Matthey’s hands, perhaps for GBP100mln.


Removal of the battery metals business would free up money for investment in the group’s hydrogen assets, Berenberg noted.


“We believe that hydrogen fuel cell components and electrolysers can absorb about GBP100mln pa of capex at the most, which still leaves a sizeable amount of bolt-on M&A in catalysis or dividends. The cash should ensure that the CEO is not at the mercy of events,” Berenberg predicted.


The broker rates the shares a ‘buy’ but has slashed its target price to 2,800p from 3,600p previously.

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