Johnson smart with uniforms
SUPPLYING and cleaning overalls, staff uniforms and the like is scarcely the most glamorous of businesses.
But for Johnson Service Group, such work is the company's bread and butter.
Johnson is not a high-profile company. Until now it has perhaps been best known for its dry cleaning operations, which operate under the Sketchley, Johnsons and Jeeves names.
Certainly, dry cleaning has historically been important for the company. Last year, it accounted for almost a quarter of operating profits.
But in March, Johnson announced that it had received an approach to buy the dry cleaning operations. And even if that bid fails to crystallise, there is every reason to expect that there will be other takers.
Analyst Shai Hill from broker Arbuthnot Securities expects a sale to bring in about £85m.
That will leave Johnson with three main parts to its business - renting out work garments and then having them regularly laundered; the rather spooky-sounding 'corporate wear' division, which sells uniforms to companies as diverse as Boots, Tesco, Lloyds TSB and the ambulance service; and 'facilities management', which helps to design and manage offices, shops and banks.
The balance of Johnson's operations has changed drastically - particularly since the appointment of Stuart Graham as chief executive four years ago.
• Read this week's small cap share tips, selected by the UK's leading smaller companies investment analysts
In part, this is due to the decline of the 'textile rental' business. Three years ago, it accounted for 60% of group operating profits. This year, if dry cleaning is sold, its share is likely to be little more than a third.
The market has been in decline, exacerbated by the shrinking of the UK's manufacturing base on which Johnson has historically relied.
But the sales performance of Johnson's business has shown signs of stabilising and that intense price competition is abating. And within the past couple of months, a major rival, Rentokil, has announced that it is pulling out of this area.
More exciting are the prospects for Johnson's corporatewear division. More than a third of UK employees already wear uniforms.
That is likely to rise towards the 50%-plus seen in America. Johnson has recently secured a deal with Virgin Atlantic and contracts across Europe for UPS and Compass. This a growth business.
Similarly, facilities management is a promising area in which to be involved. Johnson has already won contracts with Mitchells & Butlers, Fujitsu, Cable & Wireless and St George's NHS Trust in south-west London.
Some of the money that Johnson is likely to receive from selling dry cleaning will be used to plug the £34m gap in its pension fund. But there should be cash left over for acquisitions to bolster the growing parts of the group.
• Midas verdict: Johnson Service Group's current share price does not recognise the company's prospects. It is a very different beast from that of four years ago, and selling dry cleaning will allow it to invest in areas where there are good growth prospects.
As a bonus, the shares offer a high yield - dividends should top 20p this year. We believe the share price could show significant gains. Buy.
• FREE SERVICE: Get the official annual report for Johnson
Shaftesbury's approach to property is paying off
MAY'S stock market sell-off was pretty indiscriminate, with few companies' share prices escaping unscathed.
But the falls have left some shares looking cheap. Certainly, in some cases, stock market valuations were looking uncomfortably stretched and were ripe for a tumble. But in others, perfectly sound businesses have seen their values cut sharply without good reason.
With this in mind, we like the look of property group Shaftesbury. Less than a month ago, its shares were changing hands at 563p. They now stand at 515p.
Shaftesbury's assets, largely shops and restaurants, are concentrated in Covent Garden, China Town and around Carnaby Street in London's West End.
Recent results showed that Shaftesbury is achieving strong demand for its shop units and this is being translated into high rents.
And within the past few months, the company has invested £89 million in two new chunks of property that should provide plenty of scope for gentrification over coming years.
What could go wrong for Shaftesbury?
Its assets are concentrated in a small geographical area. Anything that would deal a big blow to retail activity in central London, such as a major terrorist attack, would have a big impact on Shaftesbury's retailer and restaurateur tenants.
So investors seeking a company with a diversified portfolio should look elsewhere. But Shaftesbury's approach - by investing thoughtfully to improve the general tone of an area - appears to have paid off so far. There is little reason why that should not continue.
• Midas verdict: This is a classy operation backed by excellent assets. If you are drawn to investment in a property company and don't mind its narrow exposure to a small area, Shaftesbury is a good choice. Buy.
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