(Alliance News) - Recent moves by Johnson Matthey PLC to pare down its business to its profitable core are positive, Hargreaves Lansdown said, but in terms of new opportunities, the company "looks out of ideas".
Johnson Matthey on Friday said it has sold its majority stake in its Health unit to healthcare-focused investment firm Altaris Capital Partners LLC.
The London-based specialist chemical company said it sold the business for an enterprise value of GBP325 million.
Johnson Matthey will retain approximately a 30% equity stake in Health from which it said it expects to realise "significant additional future value".
Completion of the sale is expected in mid-2022 and will lead to an accounting loss of GBP200 million for the company.
Johnson Matthey is set to be demoted from the FTSE 100 index to the FTSE 250 on Monday next week as part of the quarterly index review. The company's shares have suffered since announcing plans in November to quit its once-promising battery materials business.
Johnson Matthey explained that the Health unit operates in "different markets from the rest of the group" and a strategic review has found it is "not core" to the company.
Chief Executive Robert MacLeod added while the unit has good long-term prospects, the business required "significant" capital investment as near term trading had been "challenging".
In the financial year that ended March 31, the Health unit delivered sales of GBP237 million and underlying operating profit of GBP31 million. However in the first half of the current financial year, the business suffered an underlying operating loss of GBP4 million on GBP83 million in sales.
"Having recently exited the battery scene in surprising fashion, this news compounds the strategy to strip back to basics," commented Matt Britzman, an equity analyst at Hargreaves Lansdown. "The good news is that the core business is actually very profitable and catalytic converters, where it makes money, won't disappear overnight.
"But the new electric world is gathering pace, and the clock's ticking to find new growth opportunities."
This will be the challenge for Liam Condon, hired from Bayer AG to be Johnson Matthey's new chief executive officer from March 1. He replaces MacLeod, who will step down after eight years at the helm.
Shares in Johnson Matthey were up 0.2% at 1,996.50 pence on Friday morning in London.
By Heather Rydings; heatherrydings@alliancenews.com; and Tom Waite; thomaslwaite@alliancenews.com
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Johnson Matthey (JMAT)