JP Morgan cuts rating on Johnson Matthey as headwinds mount
JP Morgan Cazenove has downgraded Johnson Matthey, citing structural growth headwinds ahead for the blue chip chemicals and technologies group.
Chemicals
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Cutting the stock's rating to ‘underweight’ from ‘neutral’, analyst Chetan Udeshi said: "Johnson Matthey has underperformed the sector in each of the past one-year, three-year and five-year timeframes.
"This reflects ongoing structural mid to long-term growth concerns in the key auto catalyst business as well as some disappointments with the recent numbers, especially much weaker free cashflow, rising debt and falling return on invested capital.
"We believe the structural growth headwinds will likely become more visible from next year."
Johnson Matthey’s auto catalyst business is responsible for around 65% of group earnings, but growing demand for electric cars - which do not use catalytic converters - is undermining the market.
Udeshi also pointed to the "mounting" cyclical downturn in the truck markets in both the US and EU.
As result, JP Morgan's earnings per share forecasts for 2020, 2021 and 2022 are now 3.3%, 8.5% and 7.5% below consensus.
The price target has also been cut, from 3,400p to 2,850p.
As at 1300 GMT, shares in Johnson Matthey were trading 1% lower at 2,910p.