Broker tips: Auto Trader, Johnson Matthey

by | Nov 12, 2021

Analysts at Liberum raised their target price for shares of ‘top pick’ Auto Trader on the back of its latest interims, saying the group’s performance was proof that its shift towards a strategy based on average revenues per retailer was paying dividends.
Liberum argued that the faster and higher quality growth should drive a re-rating in the shares, with the analysts raising their revenue estimates for 2022-24 by 5%, 6%, and 7%, respectively.

The analysts’ comments follow a more than 14% surge in shares of the digital automotive marketplace in the previous session after the company revealed record profits and upgraded its guidance.

For its 2022 financial year, Auto Trader was now anticipating growth at retailer forecourts and low double-digit ARPR growth, compared to the company’s previous forecasts for no growth and high single-digit growth, respectively.

Liberum also hiked its target price for the shares from 815.0p to 860.0p, implying a calendar year 2022 price-to-earnings multiple target of 30.

Analyst at Berenberg lowered their target price on chemicals company Johnson Matthey from 3,600.0p to 2,800.0p on Friday, stating Thursday’s announcement that it would exit its nascent battery materials business changed the nature of the stock’s equity story.

Berenberg said Johnson Matthey’s equity story had now changed from mid-term growth to a probable break-up, in its view.

While the German bank acknowledged a group breakup had not been confirmed, it reckons that the selection of Liam Condon as new chief executive was telling as his previous employer, Bayer, was known for portfolio management.

“We would speculate that the splitting from battery materials will put the company on course for another set of break-ups to extract value,” said Berenberg, which reiterated it ‘buy’ rating on the stock.

The German bank stated the reductions to its earnings estimates reflected a combination of lower auto production volumes and European diesel market share, as well as a margin squeeze in the health business and the impact of lower palladium and rhodium prices on the efficient natural resources segment.

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