Berenberg cuts Johnson Matthey to 'hold' from 'buy'

Johnson Matthey shares fell on Tuesday as Berenberg cut its rating on the stock to ‘hold’ from ‘buy’.

Berenberg said it is downgrading the speciality chemicals and sustainable technologies company’s rating as it has reached its price target. Johnson Matthey’s shares have risen about 17% since Berenberg’s report ‘Discount to history, but what has changed’ on 30 June, outperforming the Stoxx Europe 600 Chemicals index by about 14%.

“We have consistently argued that Johnson Matthey should not be trading at a discount to its 10-year historical valuation of c17x 12-month forward P/E. This is now where the stock is trading,” Berenberg said.

“We continue to like the higher degree of safety around earnings estimated from regulation to tighter emissions in emissions control technologies (ECT). However, given a subdued environment for US heavy duty (class 8 sales down more than 30% year-to-date) and process technology, it is difficult to see further upgrades to the circa 8% earnings per share (EPS) 2016-18 compound annual growth rate in consensus.”

Berenberg said its EPS forecasts for 2016-18 rise by an average of 2%, reflecting stronger performance in European ECT, more favourable foreign exchange rates and higher platinum group metal prices, partly offset by a larger decline in US heavy duty.

Consensus EPS estimates for 2016/17 have moved up by around 4% since early July, primarily on the back of a weaker pound. Berenberg is broadly line at the EPS level.

Berenberg raised its target price to 3,350p from 3,250p, reflecting higher EPS estimates.

Shares fell 2.11% to 3,204p at 0927 BST.