Early this year my colleague Harvey Jones mused on the 236% share price rise over five years achieved by Johnson Service Group (LSE: JSG), concluding that it’s perhaps “one to watch today, possibly buy later.“
I think that was an astute judgment, as the share price has been flat in 2018 so far. And I see that as relatively positive, as I wouldn’t have been at all surprised to see a price fall in 2018 as often happens after a big growth stock surges, and when early buyers then go looking for the next big thing.
Since then, forecasts for this year have been uprated, with that early 3% EPS fall replaced by a predicted 5% rise (with a further 5% suggested for 2019).
First-half results released Tuesday provided support for that optimism, with half-time adjusted EPS up 8.1% after revenue climbed by 10.3%. The company lifted its interim dividend by 11% to 1p per share (though the dividend is weighted towards the second half).
Acquisition
Chief executive Chris Sander described it as “another consistently strong performance,” pointing to the company’s strategy of organic growth coupled with “selective acquisitions.” To that end, the firm also announced the acquisition of South West Laundry Ltd, which seems to fit nicely with Johnson’s textile rental business.
Debt is a bit of an issue, but net debt remained reasonably stable at £91.2m, and a net debt-to-adjusted EBITDA ratio of 1.6x is perhaps only a little high at worst. I’m not too troubled by it.
With the full year now expected to come in “slightly ahead of current market expectations,” I see forward P/E multiples of around 14 to 15 as tempting. Progressive dividends add to the attraction, even if they are only yielding around 2% now.
Bigger yield
STV Group (LSE: STV) also revealed first-half figures Tuesday, and after a couple of flat years, it looks like we could be on for renewed EPS growth here too as the firm made the bold claim that its “strategic growth plan gathers momentum.”
The company saw total revenue grow by 6%, with advertising revenue up by the same margin and digital revenue up 24%. STV also enjoyed its best share of viewing figures since 2009, at 18.7%, and was happy to point out that it beat ITV by 10%. Cost savings of £2m to fund new investments are on track too.
The bottom line showed an 8% rise in pre-tax profit, with adjusted EPS up 6%, and that enabled a 20% jump in the interim dividend. But what are the downsides?
Debt?
Well, debt is a bit of an issue here, up 11% to £37.8m. That’s around 1.65 times annualised EBITDA (based on the first-half figure of £11.4m), but again, I don’t see it as too stretching.
With P/E ratios in the 8 to 9 range, we’re looking at a PEG ratio based on 2019 forecasts of 0.6 — which looks attractive from a growth standpoint.
But so far I have neglected what fellow Fool writer Rupert Hargreaves likes best about STV, its dividends. Analysts are forecasting yields of 5% and 5.4% for this year and next, which should be more than twice covered by predicted earnings. And with EPS rises of 7% and 13% suggested, STV looks like a promising candidate for both growth and income to me.
