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Berenberg upgrades Johnson Matthey to 'buy'
Analysts at Berenberg upgraded their recommendation on shares of Johnson Matthey from 'hold' to 'buy' on the back of its recent market share gains in European autocatalysts.
That, they believed, should translate into a return to a high single-digit rate of growth in profits.
Yet at present, its autocatalysts unit was trading at an implied 2018 price-to-earings multiple of 10.2, for a roughly 37% discount to the wider European chemicals sector which was changing hands on a multiple of 17.5.
Those market share gains and the introduction of Euro 6 regulation would lead to earnings growth of approximately 6% per year at the autocatalysts unit out to fiscal year 2022, Berenberg said.
Current market pricing also implied that its battery unit was effectively being valued at zero, due to concerns regarding its positioning in battery cathodes, whereas they believed that by 2025 the outfit would be able to capture a tenth of the market for EV cathodes, which was worth £600m.
Using a sum-of-the-parts valuation for each of the company's segments and rolling over its estimate of the company's discounted cash flows, their target price for the stock rose from 3,350p to 3,680p.
"At 14.4x P/E and 9.5x EV/EBITDA for 2018E, JMAT is the cheapest stock in UK chemicals, despite offering one of the highest growth rates (two-year earnings CAGR 8.2% versus 6.9% average)."