We have talked in recent issues about companies with durable competitive advantages, or ‘moats’ as Warren Buffett calls them.
One such business is textile and workwear rental firm Johnson Service Group (JSG), which thanks to its national presence and high levels of service has built a loyal customer base with a strong retention rate.
Having recently completed its move from AIM to the main market, the company will be on more investors’ radars than previously and could enjoy a whole new level of interest.
The group’s core business is textile rental and cleaning services to the hotel, restaurant and catering trade, collectively known as HORECA, which accounts for around 70% of revenue.
The other 30% comes from renting and cleaning workwear, with both divisions serving thousands of loyal customers.
With the UK hospitality industry still not back to its full potential, revenue growth has mainly come from price increases, backed up by top-notch levels of service, but the HORECA business has also steadily grown its market share and when the upturn comes the firm has the capacity to increase volumes.
In the meantime, as long-standing chief executive Peter Egan says, it’s a question of constantly improving and finding marginal gains to improve profitability.
That could mean investing in more efficient sorting systems or driers, or recycling heat and water better, or using more modern, greener vehicles to deliver textiles and clothing to customers.
‘Our continued focus on operational excellence and margin improvement has positioned us well to achieve our target of at least a 14% adjusted operating profit margin in 2026, and we are on track to meet full year adjusted operating profit in line with market expectations,’ said Egan at the half-year stage.
Achieving a 14% margin target next year will be no mean feat, considering half-way through this year the firm made an 11.1% return, and Egan and finance director Yvonne Monaghan are aware of the challenge, given the burden of increased labour costs and taxes on UK employers since this April.
However, energy costs have fallen as a proportion of revenue and prices for electricity, gas and diesel have been fixed for the rest of 2025 and 2026, while lower interest rates over the next 18 months will also help.
In a sign of confidence in its forecasts, the firm announced a new £30 million buyback this month which equates to 5% of its current market cap.
With the shares having gone sideways for the last five years, while operating profits have risen to well above their pre-pandemic peak, the current rating of 11 times current-year 2025 earnings looks undemanding for such a quality business.
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