Johnson Service (JSG:AIM) makes a great start to the year by announcing 2017 results will be ahead of management expectations and pulling off a deal to expand its operations.
The company specialises in 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.
The company is known for making acquisitions, it made two in 2016 and has now added StarCounty to expand the geographical footprint of its linen brand Stalbridge.
The deal cost the company £3.9m including a £0.9m freehold building in Wrexham where StarCountry is based. The move has pleased analyst Investec which has upgraded its 2018 and 2019 earnings per share by 2%.
News of the deal and upgraded results drove the share price up 2% to 144.4p.
Shares picked up on this business’s potential in September. We noted it had the foresight to dispose of its loss making dry cleaning business at the start of last year to concentrate on the more lucrative linen and work wear markets.
It has also been aided by the purchase of its larger competitor Berendsen by French group Elis, with suggestions that the UK market won’t be a priority for the new owner of the business.
CHANGES AT THE TOP
Current chief executive officer Chris Sander’s departure has been signposted for some time and his replacement Peter Egan seems a logical choice to take over the reins.
An internal appointment, Egan is currently managing director of Apparelmaster, the company's work wear division.
Investec says that the company’s valuation remains attractive. It is trading on 16.8 times 2018’s 8.6p of earnings which the analyst says is a discount to the sector average of 21.4 times. Investec’s target price of 170p implies 17.7% of upside and the stock also provides some income with a 2% dividend yield.
According to a source at the company, the hotel linen servicing business is highly fragmented, providing scope for further M&A activity.
