Johnson Matthey's Divestiture Play: A Golden Opportunity for Income Investors

The market's immediate 30% surge in Johnson Matthey's (JMAT) stock following its $2.4 billion sale of the Catalyst division to Honeywell sends a clear message: this strategic reshaping is a win-win for both companies—and a compelling income opportunity for investors. By offloading a non-core asset, JMAT has unlocked a path to higher dividends, reduced leverage, and a streamlined focus on high-margin Clean Air and Platinum Group Metals (PGM) businesses. Here's why income-focused investors should act now.

The Catalyst Sale: A Leveraged Win

The $2.4 billion deal—valued at 13.3x EBITDA—doesn't just deliver an immediate £1.4 billion cash windfall for shareholders. It also slashes JMAT's net debt to a projected 1.6x leverage ratio, well within its 1.0x-1.5x target range, per Jefferies analysis. This deleveraging eliminates a major overhang, freeing up capital for shareholder returns and growth. The all-cash structure ensures £0.8 per share is returned post-closing, including a proposed £0.55 final dividend, which marks a 12% increase over 2023.

The Dividend Machine Rebooted

JMAT's capital allocation plan is investor-friendly:
- £130 million in annual returns by 2025/26, rising to at least £200 million by 2026/27, split between dividends and buybacks.
- Free cash flow targets of £250 million by 2027/28, driven by lower capex and working capital efficiencies.

With a clean balance sheet and a mid-single-digit CAGR outlook for its core businesses, JMAT is primed to deliver sustained dividend growth—a rare commodity in a volatile macro environment.

Core Businesses: Growth Anchored in Sustainability

The divestiture leaves JMAT focused on two high-margin, secular-growth segments:
1. Clean Air: Represents 70% of revenue, with demand driven by stricter global emissions standards. The light-duty vehicle catalyst market alone could grow at 4-5% annually through 2030.
2. PGM Services: Leverages JMAT's expertise in platinum recycling and battery materials, a $50 billion+ market by 2030 as EV adoption accelerates.

The Catalyst division's sustainable tech pipeline (150+ projects) now fuels Honeywell's green energy ambitions, while JMAT retains its $500 million+ annual cash flow from PGM refining—a business with 20%+ operating margins.

Why Now? The Risk/Reward Is Compelling

• Valuation Discount: Despite the post-announcement rally, JMAT trades at 8.5x 2025E EV/EBITDA, below its five-year average of 10x.
• Dividend Yield: At 2.8%, it's 50% higher than the FTSE 100 average—and set to climb as returns scale.
• Jefferies' Bull Case: The firm sees £400 million+ in annual EBIT from core businesses, supporting a £50+ per share total return over two years.

Final Call: Income Investors, Take Note

JMAT's restructuring isn't just about cutting costs—it's a calculated pivot to dominate high-margin, climate-driven markets. With a leveraged balance sheet now history, and a dividend engine primed for growth, this is a rare stock offering both income and growth upside in a choppy market.

The 30% pop since the Honeywell deal is just the start. Income investors who act now could secure a 2.8% yield today—and ride the next leg up as JMAT's streamlined model delivers.

Action to Take: Buy JMAT shares for income and growth exposure to the clean energy transition. Set a price target of £160 (30% upside from current levels) by 2026, based on consensus estimates and dividend accretion.

This is a story of value creation at its best: a company rewriting its future—and rewarding shareholders handsomely in the process.