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Is this FTSE 100 stock an opportunity to capitalise on the trend for electric vehicles?

Kevin Godbold
·3-min read
FTSE 100 (London Stock Exchange Share Index) on Gold Coin Stacks Isolated on White
FTSE 100 (London Stock Exchange Share Index) on Gold Coin Stacks Isolated on White

FTSE 100 stock Johnson Matthey (LSE: JMAT) has a big business providing catalysts and catalyst systems to reduce vehicle and industry emissions. But the UK government recently announced its goal to ban the sale of new fossil fuel vehicles by 2030. And the trend worldwide looks like it’s heading towards far wider use of electric vehicles.

This FTSE 100 stock may not be the best green growth play

So, the trend may not be the friend of one of Johnson Matthey’s core businesses. However, within the chemicals theme, the company has several other business lines. And one promising area of development is the firm’s eLNO range of nickel-rich advanced range of cathode materials for electric batteries. Indeed, the company is operating at the cutting edge of today’s technology needs in the electric vehicle market.

Today’s half-year results report to 30 September reveals an operating performance that chief executive Robert MacLeod reckons is “ahead of market expectations.” However, although revenue grew by 2% year-on-year, underlying earnings per share plunged by 50%. Indeed, sales in the period declined 20% and the revenue increase occurred because of higher average precious metal prices.

Looking ahead, MacLeod said the business is “currently seeing a strong recovery in demand across all regions, especially in China.” On top of that, he reckons the company is making good progress with the commercialisation of eLNO. The directors have “increasing confidence” from customer testing. And the company plans to proceed with the front-end engineering design for its second commercial plant.

It seems to me the company is in the process of evolving to adapt to the changing markets. Indeed, there’s much talk in the report about structural improvements and cost-saving initiatives. However, the medium-to-long-term future of the overall business seems uncertain to me.

eLNO looks exciting but maybe not within Johnson Matthey

Meanwhile, the new eLNO business is at an early stage. And I wonder if progress in that division over the next few years may simply replace declining business elsewhere. For example, in the area of supplying catalysts for fossil fuel vehicles.

For me, buying shares in Johnson Matthey isn’t the most promising way to play the green theme. If the eLNO division had been a standalone company, I’d be tempted to buy some of its shares for the growth potential. But, within Johnson Mathey, I suspect weaker trading in the wider business may neutralise any progress from eLNO.

However, the company expects a better trading outcome in the second half than in the first six months of its trading year. And MacLeod is excited” by the company’s medium-term growth prospects “driven by accelerating global trends.” He said Johnson Matthey is investing for the future and executing growth opportunities “including battery materials, fuel cells and our hydrogen production technologies.”

Meanwhile, City analysts following the company expect earnings to rebound by more than 30% in the trading year to March 2022. However, even then, earnings will still be just below where they were five years earlier. The stock isn’t for me.

The post Is this FTSE 100 stock an opportunity to capitalise on the trend for electric vehicles? appeared first on The Motley Fool UK.

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Kevin Godbold has no position in any share 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.

Motley Fool UK 2020