Broker tips: Johnson Matthey, Entain, 888

(Sharecast News) - Berenberg downgraded Johnson Matthey on Thursday to 'hold' from 'buy' as it cut its price target on the stock to 1,650.0p from 2,200.0p, saying the stock was "interesting, but no longer compelling". The bank said Johnson Matthey's (JMAT) equity story is "absorbing".

"There are few clearer examples of the tension between a declining core business (autocatalysts) and newer growth segments (catalysts, hydrogen tech)," it said.

It noted that the progress made under the new chief executive in securing customers for catalyst technologies and anchor contracts in hydrogen left the bank hopeful of a turnaround.

However, Berenberg said it has "grown more doubtful" about JMAT's ability to grow earnings in the next few years or expand its valuation multiple beyond circa 7x EV/EBITDA.

It pointed out that platinum group metals prices, especially rhodium, have been under pressure and said higher interest rates are not supportive of automotive sales.

"The increasingly likely delay to and/or watering down of the Euro 7 emissions legislation also limits upside to consensus profit estimates for the company's clean air division," it said. "The buyside is likely aware that consensus EBIT is too high in the near term, but we are uncomfortable remaining buyers when our EBIT is close to 20% below Bloomberg consensus for 2026.

JP Morgan has reiterated its 'overweight' ratings on UK-listed gambling stocks Entain and 888, saying that gaming remains its preferred sub-sector within the leisure industry right now.

Despite recent profit warnings from both companies, shares have de-rated by around 20% since June, analyst Estelle Weingrod said in a research note on Thursday. As such, the sector trades at just 8.5 times EBITDA estimates for 2024 on average.

Weingrod said it's attracted to the gaming sector due to its relatively defensive nature during downturns, as well as improved visibility on the back of a "more recreational customer base and the ongoing step-up in safer gambling-related investments".

Further legalisation in certain markets and improving online adoption adds to growth prospects, as well as opportunities for expansion in the US.

JP Morgan has a 1,800.0p target price for Entain, suggesting significant upside from the current 960.0p level, while 888 has a target of 150.0p, compared with Thursday's price of around 90.0p.

The other UK-listed gaming stock in the bank's coverage, Flutter Entertainment, is rated 'neutral' with a target price of 17,100.0p, still suggesting some way to go from the current 13,775.0p level.