Johnson blip may not presage recovery
Posted on April 17, 2009 by Richard Beddard
Filed Under Companies |
That green shoot could wither
Old friend Johnson Service (JSG), a shrinking mini-conglomerate whose most visible business may be its dry cleaning chain, published its annual report last month. A year ago, I described its gradual meltdown:
…the drip-drip-drip of collapsing ambition, rising costs, falling margins, resignations, dividend cuts, write-offs, profit warnings, refinancing and ultimately dramatic recovery, or insolvency.
It looked like a case study of a company that overreached, buying eight businesses in its most prolific year, and subsequently having to sell the best of them to repay some of its unmanageable debt.
Johnson Service has yet to confirm my prophecy, though. It hasn’t staged a dramatic recovery or gone bust, yet. A rally since March from 5p to 14p puts it among last month’s big risers but it’s a tiny blip in the long-term chart, which shows a high of 476p in 2005.
The results, though, (for the year to 31 December 2008) seem to have provoked the blip, and the shares are still very cheap. Using the 10-year price earnings ratio as a guide, you can buy the shares for less than half an average year’s profit.
Whether we’ll ever see those levels of profit again from the restructured and still indebted company is, of course, the question.
Investors may have gained confidence from the fact that, under the tenure of turnaround specialist John Talbot, the company has paid off most of its short-term debt. Talbot, who owns about £0.5m worth of shares, is committed. He bought 170,000 more shares at 8p a share after the announcement.
However, Johnson still owes more nearly £80m in long-term debt, it still operates defined benefit pension schemes, which owe £15m more than they owe, and excluding exceptional items, it’s even less profitable than last year. Even though it successfully raised funds, since it probably could not have continued without a rights issue, it’s a sign of financial weakness, not strength.
So, although Johnson has demonstrated staying power, it’s yet to demonstrate recovery potential, and it’s still too speculative for this safety-first investor. I’ll look at it again next year.
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Haynes (HYNS) published a mixed Interim Management Statement today. Retailers are still destocking its manuals but the declining dollar means revenues are up and John Haynes is confident that the year’s results in September will be an improvement on February’s results, when he announced a 39% drop in profits.
In theory:
Investing to beat the recession
The New Yorker says companies that invested and expanded in the Great Depression did better than those that hunkered down. Most didn’t, but it was the making of Kellogg’s Rice Krispies.
Alphaville has a chart of the number of aircraft in temporary storage.
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2 Responses to “Johnson blip may not presage recovery”
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Hi Richard
Thanks for the very interesting article.
(One slight problem though is that you’ve included links to your local machine for a couple of the pictures/graphics, which means that they’re inaccessible/don’t display to anyone viewing on the web!)
Hi Alan. Thanks for your comment. Hmmmm… What can’t you see? The only image in this post is the Johnson Service chart, which seems to be ok.