Johnson Service gradually returning to normal

Johnson Service Group (JSG), the textile rental business, is creeping back to normality after Covid-19 decimated hospitality sector demand. The hotel, restaurant and catering business was badly hit, with volumes at 11 per cent of normal levels in Q1, however, it was back to 80 per cent in August. Management doesn’t expect it to return to full capacity until next year.

Workwear, which provides services to corporates, has been more robust. It continued to operate throughout the lockdowns and reached 98 per cent of normal levels in June 2021. Customer retention levels were also 95 per cent to the end of July. Total revenue for workwear for the first half of the year was £64.5m which was flat from the year before.

One challenge is a shortage of labour. The company has recruited 700 new employees but said that “the competition for labour in the employment market generally has resulted in increased costs of production”. Its adjusted cash margin was down 470 basis points to 17 per cent from last year. Management says it is planning to offset wage inflation with price rises but it may take some time as clients sign multi-year contracts.

Peel Hunt is expecting adjusted EPS of 1p for the end of the year, before rising to 8.4p at the end of 2022. This means the group is trading at 17.5 times 2022 earnings. Given the group's normal growth profile – slow, but steady – the rating isn't compelling, particularly as we are yet to see how the recovery plays out. Hold.

Last IC View: Buy, 153p, 19 March 2021