Numis downgrades Johnson Matthey to 'hold' from 'add'

Johnson Matthey’s rating was downgraded to ‘hold’ from ‘add’ but its target price was raised to 3,138p by Numis after the company reported its full year results.

The speciality chemicals and sustainable technologies group last Thursday reported a 5% decrease in full year pre-tax profit to £418.2m, beating forecasts of £415m. Efforts to cut costs and an exceptional impairment and restructuring charge of £141m hit profits.

Net debt was reduced by £319.5m despite funding a special dividend of £304.5m.

Revenue rose 7% to £10,7m, boosted by a strong performance at its emission control technologies (ECT) business and progress in new business and fine chemicals. It offset sales declines in other parts of the group including process technologies and precious metal products.

The firm expects slightly higher earnings in the coming year, saying the regulatory push for cleaner vehicles would bolster demand although competition would be intense.

“Near term earnings per share growth looks unlikely to be scintillating, so the investment case needs to look more to the medium term drivers and the potential in Europe especially as Real World Driving Emission standards oblige original equipment manufacturers to use Johnson Matthey to develop far cleaner diesel vehicles,” said Numis analyst Charles Pick.

“A major shift away from diesel vehicles in Europe would be costly, whilst automotive markets are cyclical and weak Chinese demand may remain a feature for some operations for some time to come.

Pick added: "Our target price has been amended to 3138p (from 2995p) based on a suggested multiple of c.16x estimated calendar year 2017 diluted earnings per share of around 196.1p."

Shares fell 1.29% to 2,914p at 1002 BST.