- First half revenue tops 2019 level
- Dividend and buyback to lift total returns
- Uncertainty over economy clouds full year outlook
Linen supply company Johnson Service Group (JSG) posted an upbeat trading statement showing a strong improvement in revenues for the six months to June.
The group also marked its return to the dividend list with an interim payout and said it intended to launch a share buyback.
However, the firm’s caution on margins and caveats regarding the full year outturn were poorly received by investors, who marked the shares down 6.5% to 89.8p.
ALMOST BACK TO ‘NORMAL’
Reported revenue for the first half was £176.2 million, up 77% on last year and slightly ahead of the £167 million posted in the first half of 2019 - the last ‘normal’ year of trading - thanks to 73% organic growth and strong customer retention.
The Cheshire-based firm said volumes continued to recover as the hospitality industry returned to ‘more normal and predictable levels’, with second quarter volume reaching 91% of 2019’s level.
It also managed to push through price rises to mitigate the increase in its own input costs and said it was ‘proactively’ managing higher energy costs while introducing further efficiency measures.
Encouragingly for future revenues, the company reported ‘increasing sales activity and a strengthening pipeline of new business enquiries’.
Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) jumped from £16.9 million to £42.8 million, while at the operating level the firm swung back to a profit of £12.8 million against a loss of £9.5 million in the first half of last year.
MIXED MESSAGES
Chief executive Peter Egan said the firm had made ‘a significant improvement in the group's financial performance’ during the first half, while improving energy and production efficiencies as well as investing in capacity.
Reflecting its strong performance, the company reinstated its interim dividend with a payment of 0.8p per share and said it would buy back up to £27.5 million of its own stock, which at the current price would mean 30.5 million shares or just under 7% of the shares in issue.
Egan also hinted the firm would use its strong balance sheet and cash generation to pursue ‘earnings-accretive acquisitions’.
However, he admitted that despite implementing ‘material’ price rises across the customer base the firm was likely to see ‘some margin pressure in the short term, particularly in respect of energy costs’.
He also said the firm’s full year expectations depended on volumes following ‘the normal seasonal pattern’ in coming months and not being affected by a reduction in discretionary spending ‘or a further material deterioration in the energy markets’.
Analysts at Numis called the update ‘reassuring’ and the share buyback ‘a positive surprise’, but said the high degree of uncertainty over the broader economy meant the risk to their forecasts was to the downside, albeit the shares were already trading at a low for 2022.
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