Johnson Service: workwear provides resilience amid hospitality carnage

Last year reflected a tale of two businesses for textile rental and cleaning specialist Johnson Service (JSG) as it swung to a £12m adjusted operating loss.

Amid the pandemic squeeze on the hospitality sector, the group’s ‘hotel, restaurant, and catering’ (Horeca) division recorded a £32m adjusted operating loss – versus a £33m profit in 2019 – with volumes plunging to as low as 3 per cent of normal demand during the first lockdown. While volumes recovered to 55 per cent of usual levels at the end of September, the reintroduction of restrictions saw them drop back down to 9 per cent in January and February.  

The workwear segment proved more resilient to the Covid crisis, with adjusted operating profit dipping by just 5 per cent to £23m. Workwear volumes bounce backed to pre-pandemic levels in October, and during the current lockdown, they are running at 96 per cent.

Johnson Service generated £66m of free cash flow in 2020, and thanks to an £83m placing in June, finished the year with £7m of net cash (excluding lease liabilities). It plans to reinstate the dividend “as trading returns to more normalised levels.”

As hospitality sector moves closer to reopening, the group’s essential services and geographical footprint leave it well-positioned for an earnings recovery. House broker Investec expects an adjusted operating profit of £11m this year, rising to £50m in 2022. Buy.  

Last IC view: Buy, 108p, 02 Sep 2020

Last IC View: Buy, 108p, 02 Sep 2020