There was a time when Friday night was merely a warm-up for Saturday and Thursday, well that was obligatory office drinks after four days' hard work. Each would have demanded a pristine shirt or dress for the occasion. In these austere times, people are not so keen to run up large dry-cleaning bills. Which is another way of saying these are hard times to be a high-street dry cleaner.
- Debt reduction making progress
- Decent dividend yield
- Dismal high-street conditions
- Leasehold liabilities
- Threadbare balance sheet
- Falling margins in workwear division
Johnson Service looks especially exposed. It has leases in unprofitable shops all over the UK's gap-toothed high streets, its balance sheet looks threadbare and profit margins in its core textiles rental business are falling.
Investors may be comforted by the £73.7m or 29p per share of net assets. But, much like a Saturday-night minidress, the amount barely covers the owner's decency. It includes £95m-worth - 37p a share - of intangible assets. Also on the balance sheet are £23m-worth of workwear, towels and linens for rent. These have a short life and require regular renewal - last year Johnson wrote £13m off the value of its textiles and spent £19m buying new stuff. That's a concern in a business where net debt - down to below £50m, having fallen four years running - remains higher than it should be.
JOHNSON SERVICE (JSG) | ||||
|---|---|---|---|---|
| ORD PRICE: | 29p | MARKET VALUE: | £74m | |
| TOUCH: | 29-30p | 12-MONTH HIGH: | 36p | LOW: 25p |
| DIVIDEND YIELD: | 3.8% | PE RATIO: | 7 | |
| NET ASSET VALUE: | 29p | NET DEBT: | 66% | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 252 | -6.8 | -3.4 | nil |
| 2009 | 236 | 20.6 | 6.1 | 0.75 |
| 2010 | 235 | 4.2 | 1.3 | 0.82 |
| 2011 | 242 | 13.7 | 4.1 | 1.00 |
| 2012* | 247 | 14.6 | 4.1 | 1.10 |
| % change | +2 | – | – | +10 |
Normal market size: 10,000 Matched bargain trading Beta: 0.7 *Canaccord Genuity estimates (profits and earnings are not comparable with historic figures) | ||||
Much was made in 2011's results of net debt being reduced to £49.7m, but a big chunk of the latest fall was down to a tax rebate; a one-off item. In the same period, long-term debt fell by just £2.1m to £51.4m. Self-help strategies nudged operating profits up 1.1 per cent to £18.5m; but the core textile rental division, responsible for 72 per cent of profits, saw margins falling to 13.5 per cent. The workwear market is set to be highly competitive again in 2012, with higher cotton, energy and labour prices. Chairman John Talbot says: "We seem to be acutely sensitive to bad economic news."
Meanwhile, Johnson made 9 per cent of its operating profits from dry cleaning and, despite closing 17 stores, still has 463 shops all over the country, with non-cancellable lease liabilities of £93m.
