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Highlights

  • JMAT’s target price increased from GBX 1,380 to GBX 1,800 by Berenberg.
  • Catalyst Technologies segment sold to Honeywell for GBP 1.8 billion.
  • Share price rose over 20% since the divestment announcement on May 22.

Berenberg updated its target price for Johnson Matthey Plc (LSE: JMAT) to GBX 1,800 from GBX 1,380 after the company announced the sale of its Catalyst Technologies segment. The divestment, valued at GBP 1.8 billion, represents a 13.3x enterprise value to underlying earnings multiple and was finalized with Honeywell.

The German bank noted the company’s share price had increased more than 20% since the May 22 announcement. Berenberg attributed the rise to the removal of conflicting business narratives within Johnson Matthey, separating its growth-focused and cash-generating segments. This divestiture clarified Johnson Matthey’s role as a cash generator, despite expectations of earnings decline starting in the late 2020s.

Berenberg described the remaining business as having “endearing simplicity,” particularly highlighting improvements in margin restoration within the Clean Air segment. However, the streamlined focus also positions Johnson Matthey as a potential private equity acquisition candidate.

Despite the target price increase, Berenberg maintained a 'hold' rating on the stock. The bank emphasised that while the divestment may enhance valuation through clearer operational focus and improved cash generation, investors should consider the implications of the company’s anticipated earnings trajectory.

Johnson Matthey’s strategic shift follows trends in the market where firms often refocus on core activities to enhance shareholder value. The transaction price for the Catalyst Technologies division exceeded the group’s valuation multiples, supporting the bank’s assessment of the divestment’s positive impact on Johnson Matthey’s valuation.

The company’s continued execution on margin improvements in Clean Air and a clearer business structure will be key factors watched by investors and analysts going forward.