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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) |
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|---|---|---|---|---|
| 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 |
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Guide to the terms used in IC results tables.
More analysis of company results
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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