Urbanization And Decarbonization Will Expand Clean Air Amid EV Headwinds

Key Takeaways

• Efficiency gains, cost reductions, and commercial initiatives are driving margin expansion and cash flow growth beyond market expectations, especially in Clean Air and PGM Services.
  
• Leadership in emissions control, refining, and recycling positions Johnson Matthey to benefit from tighter regulations, industry trends, and growing demand for environmental technologies.
  
• Over-reliance on mature, capital-intensive segments exposes Johnson Matthey to market shifts, technological disruption, and margin pressure amid accelerating EV adoption and rising compliance costs.

Catalysts

Engages in the clean air, catalyst and hydrogen technology, and platinum group metals (PGM) service businesses in the United Kingdom, Germany, rest of Europe, the United States, rest of North America, China, rest of Asia, and internationally.

• Analyst consensus anticipates margin and earnings growth through targeted transformation, but this is likely understated; current efficiency, cost reduction, and commercial initiatives are delivering margin expansion notably ahead of expectations, setting the stage for Clean Air to achieve 16% to 18% margins and a dramatic uplift in sustainable free cash flow by 2027–2028.
  
• While consensus expects incremental improvement in PGM Services from higher-margin feedstock and operational upgrades, the forthcoming world-class refinery marks a much larger inflection: it is poised to unleash a structurally higher revenue run-rate, near-total cash conversion, and unlock substantial working capital, fundamentally transforming group profitability and cash flow.
  
• Rapidly tightening global emissions regulation-especially for heavy-duty and hybrid vehicles-coupled with JM's leadership and irreplaceable customer relationships in these segments, creates a far more resilient and longer-lasting Clean Air base business than the market appreciates, underpinning high-visibility revenues and margin durability deep into the next decade.
  
• The global acceleration of urbanization and industrialization, particularly in emerging markets, is vastly expanding the need for environmental technologies and advanced catalytic solutions, positioning Johnson Matthey to capitalize on outsized addressable market growth for both Clean Air and PGM segments, which will support sustained top-line expansion.
  
• As recycling and circular economy models gain importance in securing critical material supply, Johnson Matthey's unmatched scale and expertise in precious metals refinement and catalyst lifecycle management are set to command premium margins and market share, amplifying earnings and reinforcing long-term earnings quality across cycles.

Johnson Matthey Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Johnson Matthey compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Johnson Matthey's revenue will decrease by 42.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 3.2% today to 10.8% in 3 years time.
• The bullish analysts expect earnings to reach £239.8 million (and earnings per share of £1.76) by about September 2028, down from £373.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 16.4x on those 2028 earnings, up from 8.6x today. This future PE is lower than the current PE for the GB Chemicals industry at 21.8x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.6%, as per the Simply Wall St company report.

Johnson Matthey Future Earnings Per Share Growth

Risks

• Johnson Matthey remains heavily exposed to its Clean Air business, which is fundamentally tied to the internal combustion engine vehicle market. An accelerated global transition to electric vehicles threatens the sustainability of revenues, and as ICE-related sales decline faster than new businesses scale up, this could lead to lower long-term revenue growth and margin compression.
  
• The company's reliance on platinum group metals in its core PGMs segment faces long-term risk from evolving technologies in battery electric vehicles and alternative chemistries, which could reduce demand for PGMs. This may cap potential for future topline growth and negatively impact earnings as new applications for PGMs may not sufficiently replace lost automotive volumes.
  
• The divestment of Catalyst Technologies increases dependence on two mature business segments (PGMs and Clean Air), both of which operate in capital-intensive environments with substantial fixed costs. If market shifts leave assets underutilized or customer demand unexpectedly declines, this could result in asset write-downs, reduced return on capital, and pressure on net margins.
  
• Ongoing industry-wide challenges, including volatile raw material prices and increasing regulatory and environmental compliance costs, could erode Johnson Matthey's gross margins and generate operational cost pressures that are difficult to offset through self-help measures, thus constraining improvements in net profit and free cash flow.
  
• Johnson Matthey's renewed focus on its core businesses exposes it to fierce competition and potential loss of market share, particularly in emerging clean tech and battery material markets. This could slow top-line growth and increase execution risk, making it harder for the company to deliver sustained earnings improvements in a consolidating sector where larger competitors may out-invest or out-innovate JM.

Valuation

• The assumed bullish price target for Johnson Matthey is £22.9, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Johnson Matthey's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £22.9, and the most bearish reporting a price target of just £13.4.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be £2.2 billion, earnings will come to £239.8 million, and it would be trading on a PE ratio of 16.4x, assuming you use a discount rate of 8.6%.
• Given the current share price of £19.13, the bullish analyst price target of £22.9 is 16.5% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.