Barclays downgrades Johnson Matthey to 'underweight'

Barclays downgraded specialty chemicals company Johnson Matthey to ‘underweight’ from ‘equalweight’ and cut the price target to 2,570p from 2,640p.

The bank said its analysis of the process technology for lithium iron phosphate (LFP) batteries suggests key patents will expire in the next year.

"We believe Chinese producers are not currently beholden to these patents as long as material is used exclusively for the domestic market. That could explain why LFP has become so popular in China but is rarely used elsewhere.

"Expiry of those patents would relieve Chinese producers of the burden of paying royalties on exports, which could trigger expansion into new markets, and there's early evidence that (Chinese batter manufacturer) BYD is already drawing up growth plans."

Barclays said this expansion could shrink total addressable market estimates for producers of high-nickel cathodes such as Johnson Matthey.

"In time, we expect high-nickel pricing in Europe to come under pressure too. JM looks most levered to this risk with valuation close to peak so we downgrade to UW," it said.

At 1010 GMT, the shares were down 2.3% at 2,939p.