Energy costs prolong recovery for Johnson Service

Johnson Service Group (JSG), the textile rental and services specialist, has picked up the threads of its business after a few years of stagnation. The firm’s statutory operating profit rose to £33.3mn in FY 2022 – up from only £8.4mn the year before. 

Group margins also expanded by 2.2 percentage points to 27.2 per cent. This performance was largely driven by recovery in its hotel, restaurant and catering division, known as Horeca, where volumes reached 93 per cent of normal levels in the fourth quarter of last year. 

Energy costs – which exceeded 9 per cent of revenue at £36.4mn – were an ongoing difficulty for Johnson Service. As of the end of last month, the group had fixed prices for around 70 per cent of its anticipated electricity use and 80 per cent of its estimated gas consumption for the first half. 

Despite the intensifying cost pressures, Johnson Service was still able to reduce its net debt by almost 40 per cent to £13.7mn in the 12 months to the end of December. This was partly thanks to the improved trading environment, as well as the instigation of an ongoing £27.5mn share buyback programme. The dividend was reinstated last September. 

FactSet broker consensus puts the group’s forward price-to-earnings multiple at 16.2x for the full financial year. We think it’s worth waiting to see how it fares if and when cost pressures ease. Hold. 

Last IC view: Hold, 91p, 1 September 2022