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Boring is beautiful when it comes to this stock
Thursday 07 Mar 2019 Author: Ian Conway

UK-focused Johnson Service (JSG) is a steady growth compounder in the mould of Rentokil (RTO) but is less well-followed and even less well-appreciated.

The laundry rental and cleaning business isn’t headline-grabbing stuff but since 2014 the firm’s turnover has doubled, earnings per share have risen by 90% and dividends have risen by 80%.

Despite its consistent growth record, investors have ignored the stock for the last couple of years leaving the shares trading on 17 times last year’s earnings and just 16 times this year’s estimated profit.

Johnson Service operates in two distinct markets: workwear, and hotels, restaurants and catering.

Its Apparelmaster division is the UK leader in workwear rental, protective wear and workplace hygiene services with large industrial clients like food producers and car makers.

In its other market, Johnson Service owns the Stalbridge, Afonwen, Bourne and PLS laundry and linen hire firms which supply hotels, corporate hospitality, leisure and catering markets.

Thanks to sales of additional products and services to existing clients as well as new customer wins at both divisions, group organic sales growth was 7.8% last year.

Pleasingly, growth accelerated from 7.2% in the first half to 8.4% in the second half with workwear reporting record turnover last quarter.

According to chief executive Peter Egan this higher second half growth rate has continued into the first couple of months of 2019.

High levels of recurring revenue generate steady cash flows which allow the firm to invest in the business.

As well as buying more productive and energy-efficient equipment, the company has invested in software to integrate the sales and service processes and a dedicated website where customers can manage their accounts.

It has also secured a new laundry site close to its distribution hub in Leeds which will not only bring considerable cost savings but will allow it to offer its service further afield from 2020.

In order to generate future organic growth the firm looks for opportunities to add small local firms and grow market share.

While the workwear market is already fairly concentrated, the hotels, restaurants and catering market is still fragmented with plenty of options to expand.

Recent acquisitions include South West Laundry and London Linen, which provide premium services to restaurants and hospitality firms.

The combination of investing in the current business, adding new capacity where opportunities arise and expanding geographically through acquisition mean Johnson Service can continue to grow well into the future.

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