Berenberg raises target price for Johnson Matthey, hails reduction in net debt

Analysts at Berenberg raised their target price on diversified chemicals group Johnson Matthey from 2,400.0p to 2,700.0p on Monday, but stated that it was "a bad day for good news".

Berenberg highlighted that Johnson Matthey's full-year results revealed some long-awaited help from working capital, which left net debt over £300m lower than expected at £1.1bn, while underlying earnings were broadly in line.

But with shares down in early trade, the German bank said the market's lacklustre reaction to the firm's 2020 full-year results were both "difficult to understand and likely to be short-lived".

"The hitherto successful bear case has been to cry 'value trap', and highlight headwinds from automotive cycle, higher working capital and the failure to become competitive in new technologies for cathode materials and hydrogen," said Berenberg, which pointed out that all of those arguments were actually weakened due to the results.

Berenberg said automotive sales were not "plausibly going to deteriorate in 2021", working capital backlogs were on track to fall and the group's new technologies in eLNO and hydrogen actually appeared to be "gaining traction".

"The additional £80m of three-year costs savings should allow for a pleasing rebound in FY 2022," added the analysts, which stood by their 'buy' rating on the group.