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Johnson Service shrugs off Brexit uncertainty

The textile rental and cleaning specialist reported robust organic revenue growth in 2019
March 2, 2020

Textile rental and cleaning will never be the most high-octane sector, but Johnson Service (JSG) is continuing to benefit from its market-leading positions and ongoing investment in capacity. Organic revenue growth came in at 6.5 per cent in 2019, while adjusted operating profit jumped 15 per cent to £53m thanks to a 0.8 percentage point expansion in the margin to 15.1 per cent.

IC TIP: Buy at 201p

The hotels, restaurants and catering business – ‘Horeca’ – achieved 7.4 per cent organic sales growth, reflecting new contract wins and retention of its largest customer, Premier Inn. Volumes were broadly stable despite some softness around the Brexit deadlines. The new high-volume hotel linen plant in Leeds remains on course for a second-quarter opening, although, as previously cautioned, Horeca margins – which reached 15.4 per cent in 2019 – will see some erosion until it ramps up to optimum capacity.

Net capital expenditure on increasing plant efficiency and purchasing new rental stock was steady at £66m, with a similar level expected this year. The group continued its strategy of purchasing smaller operators and ‘infill’ contracts to improve route density and scale, acquiring Fresh Linen Holdings for £13m in November. Despite these investments, net debt (excluding £40m in lease liabilities) fell 11 per cent to £88m, equivalent to 1.3 times adjusted cash profits.

Peel Hunt forecasts adjusted pre-tax profit of £49.3m and EPS of 10.8p in 2020, rising to £51.3m and 11.2p in 2021.

JOHNSON SERVICE  (JSG)  
ORD PRICE:201pMARKET VALUE:£739m 
TOUCH:200-201p12-MONTH HIGH:226pLOW: 128p
DIVIDEND YIELD:1.7%PE RATIO:24 
NET ASSET VALUE:56.3p*NET DEBT:62%** 
Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201518817.34.32.1
201625725.96.02.5
201729131.26.92.8
201832133.17.33.1
201935138.18.43.5
% change+9+15+15+13
Ex Div:9 Apr   
Payment:7 May   
*Includes intangible assets of £167m, or 45p a share
**Includes lease liabilities of £40m