Johnson Matthey keeps sliding

Despite high demand for Johnson Matthey’s catalytic converters the stock is still sliding.

City of London skyline
Source: Bloomberg

Johnson Matthey will announce its first-half results on 19 November, and dealers are anticipating revenue of £1.58 billion, and operating profit of £229 million. In the second-half of the last year the company posted revenue of £5.26 billion and adjusted net income of £186.5 million. The company will reveal its full-year figures in June 2016, and traders are expecting revenue of £9.64 billion and adjusted net income of £466 million. These estimates equate to a 4.1% fall in revenue and a 27.3% jump in adjusted net income.

The sale of catalytic converters is boosting Johnson Matthey’s business, and since tighter regulation in relation to emissions is on the horizon, it will ensure demand is high. The company makes one third of all autocatalysts, and the diesel versions account for more than half of all the company’s revenue as it is far more profitable than the petrol and hybrid equivalents.

The European car market is showing signs of a small recovery, and as China follows Europe with its emissions targets Johnson Matthey’s business in the Far East will continue to boom. The emissions rigging scandal by Volkswagen did the firm no favours, and diesel cars will not be more popular in the US on the back of it.

Johnson Matthey is moving away from its platinum roots and is exploring opportunities in shale gas, treating industrial water, fuel cells and battery materials. The firm’s finance director Robert MacLeod does not foresee every new venture as fruitful but he is keen to diversify and press ahead with new technology.

Investment banks are very bullish on Johnson Matthey, and out of the 16 recommendations, nine are buys and seven are holds. The average target price is £31.94, which is 27% above the current price.

The steady gains of late September to early November have run their course, with the price continuing to drop after breaking below the rising trendline on 10 November. A close below £25 would put the mid-October support level around £24.25 in focus, with a move below here opening the way to £23 and then the September low at £22.15. Bulls will need to get the price back above £26 to consider breaking through the peak of October and November around £26:

Johnson Matthey chart

The hourly chart shows the trading range of the past six weeks even more clearly, as the price bounces between £24.20 and £26.50. Steady losses seem to suggest we will test the bottom end of the range soon, and then we will see whether the buyers decide to go ‘value hunting’ once again:

Johnson Matthey chart

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