Johnson Service and the road back to tedium

Over many years, Johnson Service Group (JSG) established a reputation for being one of the dullest companies trading in London. But dull in the sense that Geoffrey Boycott was dull at the crease: dependable if not spectacular, yet widely admired and valued. The company provides textile rental, cleaning and related services across a range of sectors in the UK; somewhat prosaic in nature but a business that supported steadily rising revenues and earnings for years. Then along came Covid-19, decimating activity in many of Johnson Service’s end markets, particularly hospitality, and prompting a suspension of dividend payments.

The latest full-year figures suggest that a recovery is under way, but management pointed out that its HORECA (hotels, restaurants and catering business) division is still feeling the ill-effects of the pandemic. Nonetheless, adjusted cash profits were up by a quarter to £67.9mn, with the underlying margin up by 170 basis points. Indeed, the recovery in reported revenues was principally related to the division, as sales at the Workwear division were broadly flat on the prior year. Trading volumes at HORECA peaked at 87 per cent of normal activity in September 2021, before falling away in the final two weeks of the year, presumably due to initial (somewhat misplaced) fears over the Omicron variant. It would be reasonable to assume that the division will benefit from the ongoing rebound in the hospitality sector, although inflationary pressures could constrict discretionary incomes.

JSG is trading on a forward PE ratio of 15 times FactSet consensus earnings for 2022. This is hardly expensive given the steady earnings growth and solid forward yields on offer prior to the pandemic, but it would be best to wait until macro events play out. Hold.

Last IC View: Hold, 148p, 1 Sep 2021