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Johnson Matthey upgraded as analysts dismiss diesel catalyst fears

By Oliver Haill

Date: Thursday 17 Aug 2017

Johnson Matthey upgraded as analysts dismiss diesel catalyst fears

(ShareCast News) - Johnson Matthey received an upgrade to 'outperform' from Bernstein after the chemical manufacturer's shares fell almost 25% since October over the potential impact on its emission control technology unit from a declining diesel market.
Investors have been spooked by forthcoming bans on the sale of diesel vehicles in several European countries, leading to fears that the ECT segment, Johnson Matthey's most profitable business unit, will suffer.

The ECT unit sells automotive catalysts, a device that reduces the nitrogen oxide, hydrocarbon, and carbon dioxide emissions from vehicles.

"European diesel vehicles are a key market for the auto catalyst industry, accounting for 38% of light duty vehicle (LDV) catalyst sales," Bernstein said.

Analysts predicted that the impact of the diesel bans on companies like Johnson Matthey will be "less than feared" due to a number of factors, not least as the European Union is not interested in seeing the diesel market collapse rapidly.

Bernstein also highlighted research from green lobby group, Transport and Environment, that found some diesel cars are capable of a similarly low level of emissions as seen in petrol cars.

Furthermore, larger engines still require diesel and so heavy good vehicles will have to be fitted with more advanced catalysts - thus providing continued business for the likes of Johnson Matthey.

"While the units of diesel vehicles will certainly decline, strict regulation around diesel vehicle emission limits also provides a significant tailwind to the ECT business unit as catalyst value will have to increase," Bernstein said, with analysts forecasting average catalyst values for EU-produced diesel cars will stand at $268/unit by 2020, up by 26% compared to $213/unit in 2015.


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