Textile rentals business Johnson Service (JSG:AIM) is determined to continue cleaning up in a fragmented market. Shares in the company bounce 2.5% higher to 113.75p on forecast-busting full year results driven not only by acquisitions, but also by pleasingly healthy organic growth.

CEO Chris Sander (pictured below) reports very strong annual numbers. Sales surge more than 36% to £256.7m and pre-tax profit is up 45% to £33.8m. That is ahead of analysts’ expectations and triggers yet another round of upgrades for the Warrington-headquartered firm.

PHOTOGRAPH BY DANIEL JONES 2017 07815 853503 info@danieljonesphotography.co.uk www.danieljonesphotography.co.uk

TEXTILE TEMPTATIONS

Having recently sold its drycleaning arm to Timpson in an £8.25m deal, it leaves Johnson solely focused on the fragmented UK textile rental market. Here the company trades through well-known brands such as Apparelmaster, Stalbridge and London Linen.

During 2016, the acquisitions of Zip Textiles, Afonwen and Chester Textiles boosted its presence in the high volume hotel linen rental market. Meanwhile, robust organic growth was driven by the high service levels of provided helping to retain customers and win new accounts.

Straight-talking Sander insists Johnson Service is ‘well placed for the future, with strong brands and a reputation for delivering excellent customer service. We are also investing regularly in new and modern equipment which delivers productivity and efficiency improvements.’ He adds: ‘The successful integration of our recent acquisitions is enabling us to realise distribution and synergy efficiencies and to expand our services over a wider geographical area.’

Johnson Service Group  (8)

UPWARDS REVISIONS

Investec Securities’ support services analysts Daniel Cowan and Harry Saunders reiterate their ‘buy’ rating and 125p price target, commenting: ‘Consistent investment continues to pay off, delivering high service levels and cost savings. Customer retention, new client wins and wallet-share gains remain impressive.’

The broker upgrades its 2017 and 2018 estimates accordingly, now looking for £35.8m of pre-tax profit this year ahead of £37.4m next. Dividends should progress to 2.7p (2016: 2.5p) this year ahead of a 2.8p payout in 2018.

With this year’s forecast shareholder reward covered approaching three times by estimated earnings of 7.9p (2016: 7.6p), it is no surprise to find Johnson is a holding in The Diverse Income Trust (DIVI), whose manager Gervais Williams appreciates a good and growing dividend and those companies that invest in efficiencies and best-in-class customer service.

Cowan and Saunders also add that ‘with a strong balance sheet (net debt £98.2m; 11.4-times interest cover) and a number of potential targets remaining in the highly-fragmented UK textile rental market, further M&A remains a possibility.'

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Issue Date: 28 Feb 2017