Johnson Matthey PLC (LON:JMAT) saw its shares jump by over 13% today after it revealed it will invest an initial £200mln in expanding its battery material technology business from 2018, allaying fears that the rise of the electric vehicle market will impact its reliance on the making of catalytic convertors for cars.
In a statement ahead of its Capital Markets Day today, the FTSE 100-listed specialty chemicals company said it aims to “build capacity to drive growth in a market which could be more than US$30bn sales when battery electric vehicle penetration increases to around 10%.”
READ: Johnson Matthey sees muted underlying profit growth although cost-cutting helps
In a note to clients, analysts at Morgan Stanley said: "Johnson Matthey has delivered a confident riposte to fears over its terminal growth given the diesel debate at the heart of the investment case.”
The group also confirmed its guidance for the year ending 31st March 2018 and said at constant currency sales growth is expected to be around 6%, with an improving operating performance offset by non-cash items.
It added that guidance on foreign exchange is unchanged, and it expects it to benefit operating profit by £13mln with estimated restructuring benefits in the current financial year unchanged at £10mln.
The company said it Clean Air business, which includes autocatalysts, is expected to show "strong single-digit sales growth" in the next two to three years.
Slow move away from diesel engines
It added that from then on, growth will slow as a move away from light duty diesel engines in Europe and the expansion of the battery electric light duty vehicle market offsets growth in Asia and strength in the heavy duty sector in North America.
The company said in the medium term it is targeting a 20% compound annual growth rate in its return on invested capital, and plans to deliver a progressive dividend policy and mid to high single digit earnings per share growth.
In late afternoon trading, Johnson Matthey shares easily topped the FTSE100 leader board, up 13.6%, or 403p to 3,361p.
In a note to clients, analysts at Liberum Capital said: “There are a lot of questions to ask today on strategy and commercial risks and the shares have already anticipated lately but a positive tone has been set thus far.”
They repeated a ‘hold’ rating and 3,300p price target on Johnson Matthey shares.
-- Updates share price, adds further broker comment --