Loss to date: 6.3% Original entry point: Buy at £30.66, 21 December 2017
SHARES IN CHEMICALS group Johnson Matthey (JMAT) have plummeted after Volvo detected problems in its trucks that may cause engines to exceed emission limits.
Johnson Matthey has an approximate 60% market share for heavy-duty catalytic converters, so the recent share price decline is the market betting that Volvo is one of its clients.
UBS analyst Andrew Stott says the liability of third party suppliers to Volvo may be ‘impossible to establish’. He comments: ‘What is not clear is the extent to which harmful nitrogen oxide (NOX) emissions are being released beyond regulatory targets, if at all.
‘Volvo stated that faulty equipment “could cause emission limits to be breached”, and that the full analysis is not completed. For Johnson Matthey, however, this could flag future risk as the leading supplier of truck catalysts (an estimated c20% of group earnings before interest and tax).
Stott argues a best case scenario for Johnson Matthey is that the problem is found not to be with its product, but rather related to other factors.