When FTSE 100 stocks slump to lows hardly seen in years, it’s worth taking notice. After all, there’s a reason “buy low, sell high” is such a popular mantra in the investing community.
In that context, it’s notable that the Johnson Matthey (LSE:JMAT) share price has collapsed to 1,769p as I write. Shares in the speciality chemicals and sustainable technologies company have very rarely traded below 1,800p for the past 13 years — and, when they did, a swift recovery followed.
So, could this be a once-in-a-decade opportunity to take a position in the stock? Here’s my take.
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Share price weakness
Johnson Matthey only recently returned to the FTSE 100 index, but any capital inflows from fund managers haven’t helped the company’s performance. The stock’s down 16% in 2023 and 52% on a five-year basis.
Platinum is at the heart of Johnson Matthey’s business. Its core offering centres on platinum refining and manufacturing catalytic convertors to filter car pollutants.
However, longer-term, there are big opportunities from the firm’s research into platinum-based cancer drugs and fuel cells that rely on hydrogen technology.
Falling platinum group metal prices have weighed on the company’s recent performance, contributing to the share price slump. In FY23, underlying operating profit fell 21% to £465m and underlying earnings per share declined 16% to 178.6p.
In particular, the company’s largest division — Clean Air — which sells catalytic converters, is struggling. It experienced the largest fall in operating profit of all the firm’s units, with a 28% decline to £230m. Cost inflation and lower volumes were cited as key factors behind the poor performance.
Overall, if platinum prices remain subdued, there’s a significant risk the share price could fall further.
A platinum price recovery?
One key headwind for platinum group metals has been slow economic growth in China. However, there are a number of factors that point to a potential resurgence. This could be good news for Johnson Matthey’s margins.
South Africa is the world’s largest platinum supplier. Electricity shortages in the country are contributing to constrained production.
In addition, the World Platinum Investment Council expects there will be a 12% increase in demand for the metal from the automotive sector in 2023. Investment demand is growing too.
A combination of constricted supply and rising demand could lead to a price recovery.
Hydrogen
Beyond this, perhaps the most exciting growth area for the business is its hydrogen technologies division. Johnson Matthey aims to cement its position as a leading supplier for innovative firms in this space. This won’t happen overnight. The group anticipates the unit won’t turn a profit until 2026.
Nonetheless, the company’s recent deals to increase green hydrogen production in Norway and China show promise. If Johnson Matthey can successfully reduce its reliance on the car industry by tapping into the hydrogen economy, I think the business could have a stronger, better diversified future.
Should I buy?
There are notable risks facing the shares and a recovery could take a while to materialise. However, I like the company’s long-term strategy, which is characterised by credible ambitions to tap into future growth sectors.
The share price slump looks like it could be a buying opportunity for me. If I had spare cash, I’d buy today.
