Liberum slashes Johnson Matthey price target, cuts EPS estimates

Liberum slashed its price target on shares of Johnson Matthey on Wednesday to 3,500p from 4,400p following the company’s first-half results earlier this month.

The broker said the results threw up three negative factors, despite the solid earnings before interest and tax result and reaffirmation of full-year EBIT guidance.

Firstly, it noted that net debt ballooned during the half due to rising metals prices and will take 12-18 months to recede through company measures unless platinum group metals reverse.

Secondly, it pointed out that the company guided down second-half expectations for pharma ingredients due to weakness in suboxone API sales.

Thirdly, JMAT confirmed that US truck production is now rolling over.

Liberum lifted its two-year annual net debt forecast by more than £200m and said it was assuming a more cautious backdrop for truck markets, prompting it to cut its earnings per share estimates for March 2020 and 2021 by 7% and 9%, respectively.

Still, the broker said it was "more relaxed" than other analysts and maintained its ‘buy’ rating due to "upside to fair value" and cautious optimism about a tailwind in Asia average revenue per unit in Clean Air.

At 1020 GMT, the shares were down 1.3% at 2,974.61p.