Proactive Investors - Run By Investors For Investors

Johnson Matthey weak as Belgium’s Umicore warns on cheap cobalt supply, slowing electric vehicles demand in China

Umicore pointed out that it had been undercut by several competitors selling cheap cobalt, a key components in batteries that power electric vehicles
Electric vehicles charging
UBS reiterated a ‘sell’ rating on Johnson Matthey but pointed out that there is a limited immediate read-across for full-year 2019 for the UK firm

Johnson Matthey PLC (LON:JMAT)  shares were lower on Tuesday as traders cited a read-across following a profit warning from Belgian-based chemicals firm Umicore, which blamed cheap cobalt supplies and slowing demand for electric vehicles in China.

Umicore said its underlying earnings (EBIT) will be around 10% below consensus for 2019, pointing out that it had been undercut by several competitors selling cheap cobalt, a key components in batteries that power electric vehicles.

READ: Johnson Matthey doubles down on electric ambitions as it strikes two key deals

Shares in the Belgian company dropped by 15% in reaction to the warning, helping to drag Johnson Matthey shares 1.5% lower to 3,383p in afternoon trade in London.

In a note reacting to the Umicore warning, UBS reiterated a ‘sell’ rating and 2,850p target price on Johnson Matthey shares, but pointed out that there is a limited immediate read-across for full-year 2019 for the UK firm.

The Swiss bank’s analysts said: “We see none of these issues as being immediately relevant for JMAT which has only just announced its first investment in battery materials.”

The UBS analysts also pointed out that Umicore said its catalysts business – which also overlaps with John Matthey – is actually expected to perform ahead of consensus

But, they added: “Whilst the soft trading in auto production in 1Q19 calendar may have some modest relevance for JMAT consensus for FY19 (we are 2% below EBIT cons. for 2H19) the bigger issue for us is FY2020 consensus, which currently models 7% EBIT growth.”

The analysts concluded: “We have a Sell rating on JMAT seeing the capital intensity of the group growing at a time of fragility in auto and truck markets globally.

“Short term we see consensus as vulnerable and over the long term we see ROCE fading materially given the 'greenfield' expansion into battery materials and the uncertainty of future margins in this industry, not to mention JMAT's ultimate share of the global market.”

View full JMAT profile View Profile

Johnson Matthey Timeline

Related Articles

Itaconix
January 23 2019
Itaconix’s technology has been well-received as highlighted by the recent deals signed with Nouryon and New Wave.
Graphene
February 18 2019
The firm specialises in using nanomaterials, including graphene, to improve or enhance the properties of products such as plastics or ceramics
Grape bunches
April 03 2019
Eden Research's first product Mevalone, a grape fungicide which is used to target the botrytis disease, is currently being sold throughout the southern EU zone and Kenya

© Proactive Investors 2019

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use