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.
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: | 141p | MARKET VALUE: | £517m | |
TOUCH: | 141-142p | 12-MONTH HIGH: | 152p | LOW: 125p |
DIVIDEND YIELD: | 2.1% | PE RATIO: | 20 | |
NET ASSET VALUE: | 48p* | NET DEBT: | 51% |
Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
2017 | 138 | 12.9 | 2.80 | 0.90 |
2018 | 152 | 14.0 | 3.10 | 1.00 |
% change | +10 | +9 | +11 | +11 |
Ex-div: | 04 Oct | |||
Payment: | 02 Nov | |||
*Includes intangible assets of £160m, or 44p a share |