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Directors’ Deals: Buyback could be catalyst for Johnson Matthey shares


There was a lot of logic behind chemicals group Johnson Matthey’s decision in November to abandon investment in its battery materials business.

Although the company had pumped millions into the venture — it had net assets of £340m and employed 430 people as of the end of October — it reasoned that competition in the sector was growing at such a pace that it wouldn’t have made a decent return on the business.

Investors were clearly disappointed, though — the company’s share price sank by 19 per cent on the day and hasn’t recovered since. Most (£314m) of the division’s assets were written off, leading the company to declare a £9m loss before tax for the six months to September 30, despite sales increasing by 23 per cent to £8.59bn.

It agreed the sale of its Advanced Glass Technologies business for £178m in November and said the proceeds would be used to fund a £200m share buyback programme. That, and the disposal of its health business for £325m — or 9.8 times underlying cash profit — last month have failed to lift the gloom.

The main problem for Johnson Matthey is it makes most of its money from its catalytic converter technology, and with a ban on vehicles powered by combustion engines looming in the UK this is a dying business.

Attempts to build other sources of revenue are not, as yet, paying off.

The company’s shares now trade at just over nine times forecast earnings, below its peers and its own five-year average of 13 times earnings. With the buyback programme now under way, executives have felt confident enough of a bounceback to increase their stakes. Chair Patrick Thomas bought over £100,000 of shares on January 6, two days after non-executive Doug Webb bought more than £50,000-worth. At least one institution is betting the slide will continue, though — BlackRock Investment Management currently has a disclosable net short position equating to 1.27 per cent of the company’s shares.

Has book publisher Quarto turned over a new leaf?

Book publisher Quarto Group’s shares have more than doubled in price over the past 12 months, to 130p a share.

This is welcome news for any long-term shareholders in the company, even if the share price remains well below the heights of £3 reached in early 2017, before it announced the first of three years of losses accompanied by declining sales as it sought to cut debt.

Chuk Kin Lau, owner of Hong Kong-based book printer Lion Rock Group, took control of the business alongside one of its co-founders, Laurence Orbach, and others at its 2018 annual meeting.

Lau became chief executive and his companies provided loans offering working capital while debts were restructured. He stepped back in as an interim group chief executive last July after Polly Powell resigned less than a year into the role to concentrate on running her own publishing company, but made way for a new boss, Alison Goff, this month.

He clearly retains confidence in the publisher’s prospects. On January 6, Lau spent almost £1.25m buying 1m shares in Quarto through his company, 1010 Printing.

A day later, he added a further 343,000 shares, bringing his stake above 44 per cent.

Quarto’s fortunes seem to be improving — in the six months to 30 June 2021 it reported a $3m (£2.2m) profit, compared with a $4m loss a year earlier, as revenue grew by more than one-fifth to $56.9m. Net debt was also cut by $21m to $16.4m, although Lau warned that its second half was likely to be tougher due to higher freight costs and shipping capacity issues.

Lau’s recent purchases mean a higher concentration of shares is held by company insiders, though. According to FactSet, the combined holding of four company-linked shareholders is now more than 71 per cent.

Another consideration is that the company is incorporated in Delaware, which has tax implications in terms of dividend payments for some shareholders.

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