Johnson Service (LON:JSG) announced its results for the year to 31 December 2010 this morning. I last looked at the Company in December 2010 and decided to continue holding. The ordinary shares are currently trading at 33.75p, giving the Company a market value of £84m (8 March 2011). On the face of it, the results seem positive with increased Adjusted Operating profit (+5%), EPS (+20%) and DPS (+9%); good cash flow generation and lower levels of net debt (from £68m at Dec 09 to £60m).  However, revenue was flat (snow and tough trading conditions) and there was £8m of Exceptional costs, mostly in relation to closing 20 loss-making dry-cleaning stores (lease commitments and redundancies)

Rules Refresh

1 - Assets - NAV has hardly budged from last year, remaining at £71m. The shares are now trading a slight premium (12%) to Net Assets given that the share price has edged up from 30p since my December review.

On the plus-side, the pension deficit has reduced from £15m to £12m, and there was a tax rebate of £6m received in February 2011 - ie after the year-end.

3 - Cash Flow - (a) net current liabilities increased from £9m to £15m, with trade creditors being stretched; (b) operating cash was £34m (EBITDA after working capital movements and pension scheme payments). Out of this, the Company needs to cover interest (£4m), replacement capex (£12m - guess), tax (£1m), dividends (£2m) and debt repayments (£6m due in next 12 months). This leaves £9m "spare" and together with the £6m tax cash, covers the trade creditors. The Company appears to be generating enough cash to meets its short-term needs at least.

4 - Debt - (a) debt:equity ratio has fallen from 0.95 to 0.85, which is encouraging, even if higher than I would ideally like; (b) EV/EBITDA ratio has crept up to 7x, which is pricey. However, if Exceptionals are removed, the Adjusted EV/EBITDA ratio is 5x, which is acceptable. Since the year-end, the Company has agreed to acclerate payment of the June instalment and has reduced the overall level of facilities available, which has led to a slight reduction in the future cost.

5 - PER - the 2010 EPS is 1.2p, resulting in a PER of 28x! Stripping out…

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