Investors clean up as our tip Johnson rises 501%
EVERY week Johnson
Service Group delivers workwear to 38,000 businesses across the UK, so that 1.35million staff have clean uniforms and overalls to wear. The company also sends 8million items of tablewear and bed linen to hotels, restaurants and caterers nationwide.
Chief executive Chris Sander believes this makes Johnson a pretty accurate barometer of the UK economy and he says most businesses are fairly optimistic – they are hiring more staff and changing uniforms, a costly exercise that is undertaken only if they feel upbeat about their prospects.
Midas first tipped Johnson Service Group in 2010, when the shares were 19p. By August 2015, when we last looked at the business, the stock had risen to 86½p and since then, it has risen another 30 per cent to 114¼p for a total gain of 501 per cent.
Despite this strong performance, there is almost certainly more to come from this stock.
The group last month unveiled a 37 per cent rise in 2016 revenues to £257million, while pre-tax profits were up 45 per cent at £34 million and the dividend rose 19 per cent to 2.5p. Brokers expect profits of almost £36million in the current year and around £37.5 million in 2018. Steady growth in the dividend is forecast too.
Sander started working at Johnson 33 years ago and was promoted to the top job in 2014. He has ambitious plans for the business and has already made significant progress. He is expected to continue expanding the company both organically and by acquisition.
Johnson was historically associated with drycleaning, specifically Johnson Cleaners and Jeeves of Belgravia. Wellknown as these brands are, they were not very profitable and earlier this year Sander sold them for £8.25 million to Timpson Group, the locksmith and shoe repair chain.
Now Johnson is entirely focused on workwear and linens, both profitable and growing businesses. Johnson already has a 46 per cent share of the workwear market – with customers including Jaguar Land Rover – and this division is expected to deliver primarily organic growth. However, the UK linen rental sector is extremely fragmented, with hundreds of family businesses dotted round the country. Many are struggling to cope with rising costs and increased customer demands. Johnson is gradually acquiring these firms and incorporating them into the group.
The company has spent five years investing in equipment, including enormous commercial washing machines, to drive down energy costs and increase efficiency. As it grows, the firm can also strike better deals with suppliers and make sure its fleet of 800 vans are not zooming round the country half empty.
Past acquisitions include London Linen, which supplies Jamie Oliver restaurants, and Bourne Textile Services, which counts the Premier Inn chain as a major customer.
Midas verdict: Johnson Service Group has been a rewarding investment over the past seven years and investors who bought in 2010 or in 2015 may be tempted to sell a chunk of shares and bank some cash. But they should not sell out completely. There is still mileage in this stock, both for existing and new investors.