In a note on Monday, the broker said forecasts for a ‘V-shaped’ recovery for global vehicle markets were “over-optimistic” as they feared demand would remain constrained by the “uncertain global economy and job market” despite higher production later this year as car plants recovered from lockdown.
“We think there is a risk of multi-year weakness in both car and truck markets”, Liberum said, however, they added that they expected battery vehicle production to fare better.
Analysts also highlighted that China, which accounted for 80% of global car sales growth in the last decade, now showed signs that income elasticity of demand was slowing.
For Johnson Matthey, which also saw its target price cut to 2,100p from 3,500p, Liberum forecast an earnings (EBIT) decline of around 30% for its 2020-21 financial year as it was weighed down by downturns in its key European car and US truck markets.
The broker also highlighted that the company generated “a sizable proportion of emissions catalyst revenues” from the US heavy trucks market, where they expected output to fall by 40% in 2020.
“We do not expect a liquidity crunch if the dividend is cut and falling catalyst volumes lead to a working capital inflow, but leverage is higher than we would like given the need to reposition and modernise in the medium term”, Liberum said.
Meanwhile, the broker also trimmed its target for Victrex to 2,100p from 2,600p, saying that while the company was “by far the most cash generative” in its coverage, this should “not be confused with earnings stability”.
“Unfortunately, around 40% of profits come from markets that we believe will be subdued in FY2021 as well as in FY2020 – light vehicles, civil aerospace and energy”, Liberum said.
Shares in Johnson Matthey were 0.6% lower at 2,100p in late-morning trading, while Victrex shares slipped 2% to 1,996.5p.