Tex­tile rental firm is in a sweet spot

John­son Ser­vice of­fers good growth prospects plus some in­come as a sweet­ener

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Are you look­ing for a grow­ing com­pany that pays a bit of in­come as well? If so, you might want to look at John­son Ser­vice (JSG:AIM).

It’s in the busi­ness of tex­tile rental which in­cludes sup­ply­ing work and pro­tec­tive wear to over 40,000 cus­tomers in­clud­ing clients such as BMW. It also pro­vides linen ser­vices for the ho­tel, ca­ter­ing and hospi­tal­ity mar­kets.

Sell­ing its dry clean­ing busi­ness in Jan­uary this year seems to have paid off. Group rev­enue for the re­main­ing tex­tile rental busi­ness in­ter­ests grew 19% to £138m in the first six months of 2017, due in part to some acquisitions the firm made in 2016.

Ad­justed op­er­at­ing profit was up 20% to £18.6m and the half year div­i­dend was lifted by 12.5% to 0.9p per share.

BEN­E­FIT­ING FROM PEER’S AC­TIONS

John­son Ser­vice is cur­rently ben­e­fit­ing from strate­gic changes at larger ri­val Berend­sen which has been strug­gling due to var­i­ous in­ter­nal prob­lems.

Firstly, Berend­sen has pulled out of serv­ing cus­tomers with less than £250 of weekly busi­ness – leav­ing John­son Ser­vice to step in.

Sec­ondly, Berend­sen is now be­ing taken over by French group Elis, so there may be an­other pe­riod where it is dis­tracted by the new owner try­ing to make changes. The UK might even be­come less of a pri­or­ity as it will only rep­re­sent 15% of the en­larged Elis busi­ness by sales, based on 2016 numbers.

Out­go­ing chief ex­ec­u­tive Chris San­der says John­son Ser­vice has been suc­cess­ful in gain­ing new cus­tomers, 1,200 this year, and also good at keep­ing them. He says John­son Ser­vice has a 95% re­ten­tion rate for cus­tomers; most of the 5% it loses is down to cor­po­rate in­sol­vency.

NOT SIT­TING ON ITS HANDS

While John­son Ser­vice ap­pears to be in a sweet spot, it isn’t only re­liant on tak­ing mar­ket share from Berend­sen. For ex­am­ple, it re­cently bought high vol­ume ho­tel linen busi­ness PLS which is viewed as a good move by in­vest­ment bank In­vestec, ex­tend­ing cov­er­age to Scot­land and North­ern Eng­land.

In­vestec fore­casts the move will add around £5m in rev­enue with an ad­di­tional £0.5m in earn­ings be­fore in­ter­est and tax per year.

RBC an­a­lyst An­drew Gibb says the shares are trad­ing at his­toric highs of 16.6 times fore­cast earn­ings. He claims this rat­ing is war­ranted due to ac­cel­er­at­ing or­ganic growth lev­els, ac­qui­si­tion ben­e­fits and in­ter­nal in­vest­ment. John­son Ser­vice has a 2% prospec­tive div­i­dend yield. (DS)

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