- Shares down 55% over five years
- Board lacks ‘sense of urgency’
- Shareholder requests boardroom refresh
Marked down 55% over the past five years, Johnson Matthey’s (JMAT) unloved shares jumped 5% to £14.20 after Standard Investments called for a strategic review which could include the sale of ‘part or all’ of the challenged specialty chemicals company.
The FTSE 250 firm’s largest shareholder with an 11% stake, Standard Investments also recommended a major shake-up of the board and the ‘de-risking or sale’ of the loss-making Hydrogen Technologies unit.
In a scathing open letter to chairman Patrick Thomas, New York-based Standard argued Johnson Matthey’s board and management remain ‘complacent and incapable of correcting a misguided strategy’ which has delivered sustained underperformance and created ‘a massive credibility gap with investors and the broader market’.
WHY IS STANDARD CALLING FOR CHANGE?
Irate shareholder Standard, which also owns US specialty chemicals company and global catalysts supplier WR Grace, stressed that in the six years since Thomas has led the board Johnson Matthey’s shares have delivered a negative total shareholder return of 53%, underperforming the FTSE 250 by 72%.
And since 1 March 2022, when current chief executive Liam Condon assumed the role, the total shareholder return has underperformed the FTSE 250 by 27%.
‘Immediate action must be taken to prevent further value degradation for shareholders’, warned Standard, which also argued significant capital has been spent over many years on ‘unproven growth businesses with no demonstrated path to profitability’.
The group’s biggest shareholder called out 2021’s £50 million sale of the Battery Materials unit as an example of ‘a significant destruction of shareholder value’ under current management.
Standard also insisted Johnson Matthey’s PGM Services arm continues to ‘tremendously underperform’ and said margins in the Clean Air business ‘significantly’ underperform peers.
‘Management has shown far too little urgency in developing a clear and effective plan to improve profitability of a business operating in secular decline’, it added.
WHAT DOES STANDARD RECOMMEND?
With group free cash flow ‘volatile and meagre’, Standard warned the board lacks the urgency and strategic capabilities required to turn Johnson Matthey round, and as such urged the company to refresh the board and also de-risk or sell its Hydrogen Technologies arm, which is ‘facing a similar fate as Battery Materials’.
The major shareholder also urged the board to consider launching a formal, public strategic review process ‘exploring all potential paths for maximizing shareholder value, including, but not limited to, a sale of part or all of the company.’
Standard commented: ‘As long-term owners and operators of both industrial and investment businesses, we believe pursuing the actions we outline will position Johnson Matthey to unlock the unrealised promise of “New Johnson Matthey” and emerge as a stronger, more resilient business, enabling significant value creation for the company and its shareholders.’
THE EXPERT’S VIEW
Russ Mould, investment director at AJ Bell, commented: ‘Standard Investments’ criticisms are lent credibility by the poor performance of the share price and weak and inconsistent earnings over several years.
‘Having built on its leading position in catalytic converters, Johnson Matthey sought to diversify given the potentially existential threat a shift to electric vehicles might mean for this area of business.’
Mould added: ‘Its attempts to do so have been uneven at best, with the company forced to exit its ill-fated battery venture in 2021. Standard Investments argue its hydrogen arm is going down the same road.
‘The investor accuses Johnson Matthey of complacency – citing weak performance under the six- and two-and-a-bit-year tenures of the chair and CEO respectively.
‘The market seems to welcome Standard Investments’ intervention and that may hint at the potential for success in its efforts to secure new voices on the board and radically shake-up the business.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.
