Last month, Johnson Matthey PLC (LSE:JMAT) notched a 52-week low like many UK equities, although for shares in the chemicals group it was also the lowest they had been in 14 years as investors anticipate the tailing off of demand from the automotive sector for its catalytic converters.
Not long after May's results showed a 21% dive in annual profits as falling platinum group metals (PGM) prices hit revenues but cost rose, the company was relegated from the FTSE 100 (for the second time in three years).
For the current year to March 2024, the maker of catalytic converters for the automobile and hydrogen sectors guided to “at least mid-single digit growth” in operating profit, based on constant precious metal prices and constant currency.
The company has been pushing the angle to investors that its Hydrogen Technologies arm could grow enough to make up for the eventual end of demand from the auto industry as petrol-powered vehicles are phased out.
Breakeven from Hydrogen is anticipated next year and "significant opportunities" are touted by management for its decarbonisation products due to growing incentives from the US Inflation Reduction Act and Europe's green deals.
In September, the shares received a boost as the investment arm of New York-based industrial group Standard Industries nearly doubled the stake it had first revealed last year, becoming its largest shareholder.
However, just a few weeks later the shares were scraping new long-term lows, though wider stock market rallies have helped carry them higher in November.
Going into the interim results on Wednesday, UBS said investors are expected to have considerable interest in the outlook for auto production, the impact of the UAW strike in the US and the outlook for PGM prices.
Analysts at the Swiss bank noted that the light duty auto end-market represents 42% of JMAT's group sales, excluding metal sales, having also recently said the growth of Chinese electric vehicle manufacturers was bad news for JMAT and its peers.
The Catalyst Technologies arm has experienced a tailwind from the US Inflation Reduction Act, but the analysts wondered "how long will this continue" and said investors are also likely to want an update on hydrogen projects that have already been announced.
UBS has a 'neutral' rating on the shares, with a share price target of 1,700p (the shares are around 10% below this currently) that the analysts say implies a valuation of 6.8% times 2024 earnings, a discount to rival Umicore at 8.0 times.
"In our opinion, this multiple is justified reflecting the structural decline in ICE's, the volatility of PGM prices and the uncertainty surrounding the ramp up of hydrogen projects."