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Johnson Service Group raises expectations

The group’s strategy is continuing to pay off
September 4, 2018

It is becoming a rule of thumb that analyst upgrades accompany Johnson Service’s (JSG) results, and the interims were no different. The group’s strategy is not exotic – it sold out of its struggling drycleaning business to focus on textile rental and workwear – but its execution is impressive. High customer retention and improving productivity led management to predict full-year results would outstrip market expectations.

IC TIP: Buy at 141p

But, disappointingly, operating margin progress was mixed. While the workwear division improved by 20 basis points, it was held back by the larger textile rental business. HORECA – so called because it provides textiles to hotels, restaurants and caterers – saw a jump in profitability in the prior period as it processed roughly £1.1m of work for a private laundry which had been hit by a fire. Adjusting for the one-off, however, margins were flat.

The textile rental market remains highly fragmented, which has provided Johnson Service Group with an opportunity to fuel further growth via acquisitions – HORECA's market share has risen to 28 per cent from 5 per cent over the past five years. The group completed its purchase of South West Laundry post-period-end, expanding its operations in Devon and Cornwall.

Analyst Investec upped its forecasts and now expects adjusted pre-tax profits of £42m, giving EPS of 9.2p in 2018 (from £39.7m and 8.7p in 2017).

JOHNSON SERVICE GROUP (JSG)  
ORD PRICE:141pMARKET VALUE:£517m
TOUCH:141-142p12-MONTH HIGH:152pLOW: 125p
DIVIDEND YIELD:2.1%PE RATIO:20
NET ASSET VALUE:48p*NET DEBT:51%
Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201713812.92.800.90
201815214.03.101.00
% change+10+9+11+11
Ex-div:04 Oct   
Payment:02 Nov   
*Includes intangible assets of £160m, or 44p a share