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Davis results scrub up well

Created:
1 September 2009
Updated:
2 September 2009
Written by:
Anthony Lugg

Davis Service managed to turn out decent half-year results, despite worries that demand for its hotel and workwear would come under pressure throughout the recession. Sales and profits held steady, and improved free cash flow helped the group reduce net debt by £64.5m.

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Workwear performed well in the the UK and on the Continent even in the face of rising unemployment, although Davis admitted that the pace of growth in Europe had slowed as the economy deteriorated further. Demand from healthcare customers remained strong in both textiles and clinical solutions. The UK business reported 100 per cent retention rates, and was successful in cross-selling decontamination services. Meanwhile, the restructuring of the German healthcare division is on the way to delivering its targeted 4 per cent operating margin.

UK hotel volumes were down 10 per cent, though, and Davis says that while the pace of decline had stabilised conditions would remain tough in 2009. In Sweden, Davis is consolidating two garment plants to offset the severe impact of the downturn on its workwear and hotels businesses. And without a favourable currency tailwind, turnover would have fallen 3 per cent and operating profits by 7 per cent

Broker Investec expects underlying full-year pre-tax profits of £82.1m and EPS of 35.2p (£91.3m and 39.2p in 2008).

DAVIS SERVICE GROUP (DVSG)
ORD PRICE: 393p MARKET VALUE: £670m
TOUCH: 393-395p 12-MONTH HIGH: 406p LOW: 177p
DIVIDEND YIELD: 5.1% PE RATIO: 17
NET ASSET VALUE: 260p* NET DEBT: 107%

Half-year
to 30 Jun		 Turnover (£m) Pre-tax profit (£m) Earnings per share (p) Dividend per share (p)
2008 467 29.9 12.8 6.50
2009 482 29.2 12.0 6.50
% change +3 -2 -6 -

Ex-div:16 Sep

Payment:15 Oct

*Includes intangible assets of £483m, or 283p a share

Guide to the terms used in IC results tables.

More analysis of company results

IC VIEW:

FairlyPriced

Rapid action on costs and defensive healthcare exposure has salvaged profitability, but there's little sign of recovery elsewhere. After strong gains this year, the shares are fairly priced on a forecast PE ratio of 10.

Last IC view: Fairly priced, 225p, 2 Mar 2009

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