Broker tips: SSE, Johnson Matthey

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Analysts at Berenberg raised their target price on utilities firm SSE from 1,300.0p to 1,690.0p on Thursday, citing more bullish long-term expectations for the group’s renewables business.

Berenberg stated SSE was “well placed” to make “a significant contribution” to the energy transition through investment in electricity transmission and distribution and renewables.

However, its analysts noted that press speculation about calls for a potential break-up of the group had driven the stock higher and upside from here, whether the group was split or remains whole, looked limited.

The German bank, which reiterated its ‘hold’ rating on the stock, said a break-up would not guarantee value creation, despite arguments that a separation of networks and renewables could lead to more valuation transparency for both businesses.

“It is not clear how SSE’s smaller other businesses – thermal generation, trading, business energy supply, and enterprise – would fit in a renewables/networks separation,” said Berenberg.

Jefferies downgraded Johnson Matthey to ‘underperform’ from ‘buy’ on Thursday and cut its price target on the stock to 2,300.0p from 4,200.0p, saying it expects the shares to underperform as the company’s automotive catalyst business remains weak.

The bank said earnings growth from battery cathode materials and hydrogen will fail to compensate for this.

“We are around 4% below consensus for the next three years, which we believe do not full reflect the delay/downgrade to the auto recovery,” it said.

Jefferies noted that the stock trades on 7x EV/EBITDA, which is a 28% discount to peers.

“However, we prefer non-technically disrupted cyclicals such as buy-rated BASF trading at a 5% discount to JMAT,” it said.