Why am I bothering to mention such ancient history? Because the share price collapsed on the news, which more or less arrived just before last decade’s credit-crunch. Many will be wondering whether the stock is likely to plunge again if we see another general economic slowdown.

Recovery and growth

But Johnson did sort out its operational problems and has been posting pleasing trading and financial figures for a long time. The six-year record shows generally rising revenue and steady annual advances in normalised earnings per share, operating cash flow, and in the dividend.

My read of the situation is that the operational problems materialised before the general slowdown induced by the credit crisis. Indeed, when the economy was apparently booming, Stalbridge was losing money, so I think the problems were internal. Yet the post-credit-crunch stock market was an unforgiving environment for all shares, and it’s possible that the fall in the share price went too far.

I reckon there’s a high degree of repeat trade in the firm’s operations. Yet, if there’s another big general economic slump, Johnson’s catering and hospitality markets will suffer and I’d expect the shares to ease back. However, I’m optimistic that the fall will not be as dramatic as the last time the share price plunged. Since the nadir in 2009, the stock has climbed back up by more than 1,200%, which is an impressive recovery. But I think it would be folly to ignore the cyclical risks going forward.

A positive outlook

Today’s full-year results reveal more decent adjusted figures. Revenue from continuing operations rose 10.4% compared to the previous year and adjusted diluted earnings per share lifted 6.9%. The directors expressed their ongoing confidence in the outlook by pushing up the total dividend for the year by a tasty 10.7%.

Organic revenue advanced 7.8% in 2018 with the balance of the total gain coming from acquisitions. I wrote back in January that a sustained programme of acquisitions has “led to the firm acting as something of a consolidator in what was previously a fragmented market.” Chief executive Peter Egan explained in the report that Johnson’s strategy is to invest in operations to develop new capacity and drive “the quality of growth organically” alongside selective acquisitions, which expand the firm’s geographical coverage.

Operational problems are a distant memory and the company’s quality indicators are now impressive, with the return-on-capital figure running near 13% and the operating margin at about 12%. There’s a lot to like about Johnson service and I remain tempted to hop aboard the growth story to collect that expanding dividend, despite being a little nervous about the inherent cyclicality in the sector.

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A strong record of trading

Those financial indicators have been increasing by decent percentages annually for several years, and the robust cover for the dividend payment from normalised earnings suggests that growth is set to continue. Indeed, City analysts expect earnings to cover the dividend more than three times in 2019. A growing dividend with strong cover like that is attractive to me because it suggests the business is robust. The rising dividend is tangible proof of Johnson Service’s ability to grow, expressed in cold, hard cash. We can’t argue with that.

The firm operates in the UK offering “premium” linen services for the hotel, catering and hospitality markets, and “high-volume” hotel linen services with its brands such as Stalbridge, London Linen, Bourne, Afonwen and PLS. There’s a high degree of repeat business, which I think gives the firm a defensive element to its operations. The company reckons its ability to clean, maintain and care for textiles means its services are “fundamental” to the everyday operations of its clients.  The firm also supplies workwear and protective wear through its Apparelmaster brand. 

Growth has been both organic and via a sustained programme of acquisitions, which has led to the firm acting as something of a consolidator in what was previously a fragmented market. Today’s pre-close trading update had a positive tone and covered the six months to the end of December. During the period, the company completed a £3.3m investment in its Stalbridge Linen unit and also acquired a company called South West Laundry, which it integrated into the Stalbridge brand. On top of that, the directors signed a contract with a developer to build a laundry in the North of England, which Johnson Service plans to lease in 2020 “as part of our strategy to increase future capacity and revenue generating opportunities within our high-volume linen business.”

A positive outlook

The outlook is positive with the firm likely to have met full-year market expectations, which City analysts have pencilled in as a 7% increase in adjusted earnings for the year. They also expect a 6% advance in earnings during 2019, which suggests the firm’s steady growth is set to continue. Meanwhile, with the share price close to 122p, the forward earnings multiple for 2019 sits at just over 12 and the forward dividend is yielding about 2.6%. But remember, Johnson Service could choose to halve its dividend cover from earnings by increasing the dividend payment, which would push up the yield to around 5.2%. The fact that the company is instead redeploying the cash into the business suggests to me there’s plenty of scope for growth in earnings, cash flows and the dividend from here. I see the shares as attractive.

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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.

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Inched it

Inchcape’s recent share price performance has been unimpressive, with the stock trading 16% lower than six months ago, amid industry-wide reversals. Today’s results were headlined “A year of significant progress”, but they were not significant enough to get investors excited amid management warnings of challenges ahead.

Highlights included double-digit growth with operating profit up 14% at actual currency rates and a 12% rise in adjusted earnings per share (EPS). It also posted “strong underlying performance” across its distribution businesses, particularly in emerging markets and Asia.

Let it flow

Cash flow generation is positive at £314m, with the full-year 2017 dividend per share up 13% to 26.8p. Investors can also look forward to a £100m share buy-back. Group chief executive Stefan Bomhard hailed the fact that Inchcape now generates 79% of profits through distribution and has doubled its exposure to emerging markets since 2014, making up 21% of the business.

My fellow Fool Royston Wild is sceptical about its prospects as UK consumer spending is squeezed, but Inchcape does have options beyond these shores. However, management is warning of a more challenging year given supply and demand imbalance and new vehicle decline in Singapore. This no doubt accounts for today’s share price drop.

City analysts reckon EPS will fall 3% in 2018, but grow 4% in 2019. Trading at a forward valuation of 10.8 times earnings on a forecast yield of 4%, covered 2.3 times, it looks like one for your watchlist, but not your buy list.

Time for bed

Workwear and textile rental group Johnson Service Group (LSE: JSG) has seen its share price rise an eye-catching 236% over the past five years, although it is down 0.29% today following publication of its preliminary results for the year ended 31 December.

The group, which provides clothing, bedding and table linen for a range of businesses, also posted a “strong financial performance” with revenue up 13.3% to £290.9m, adjusted operating profit up 14.9% to £43.3m, and diluted EPS up 16.9% to 6.9p. The board recommended an 11% increase in the final dividend to 1.9p per share, lifting the total for the year 12% to 2.8p.

Debt question

In January, Roland Head described this as a multi-bagging growth stock I’d hold onto, after management upgraded profits for the second time in four months. His biggest concern was net debt of £90m at the end of June, or four times trailing net profit, and that remains a concern. As of 31 December debt stood at £91.3m although this was down from £98.2m at the start of the year.

2018 could be bumpy for the group, with EPS forecast to fall 1%, before rising 5% in 2019. At a forward valuation of 15.2 times earnings, the group is neither expensive, nor a bargain. The forecast yield is 2.3%, covered 2.9 times. As you can see, management is progressive on this score. Again, one to watch today, possibly buy later. 

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A clean sheet

Workwear and textile rental group Johnson Service Group (LSE: JSG) provides clothing, bedding and table linen for a range of businesses. The group said today that after a strong second half last year, its 2017 results are expected to be “slightly ahead of management expectations”.

It also announced a small acquisition aimed at boosting its presence in the north west of England. Wrexham-based StarCounty is a specialist hotel and catering linen business for which it has paid £3.9m. No details of StarCounty’s sales or profits were provided, but JSG did note that this price tag includes a freehold site valued at £0.9m.

Buy, sell or hold?

Today’s news marks the second time in four months that management has upgraded profit guidance for the full year. There’s no doubt that this is a growing business.

However, I believe there are a couple of risks worth noting. The first is that Johnson is heavily exposed to the catering and hotel sectors. In the event of a recession, demand could fall sharply. This could leave the firm with surplus rental inventory that has very little cash value.

A second risk is that the group’s balance sheet isn’t very strong. Net debt at the end of June was £90m, representing around four times trailing net profit. That’s pretty much the upper limit of what I’d be comfortable with, especially as the group doesn’t have much asset backing.

The shares rose by 2% after today’s news and now trade on a forecast P/E of around 17. The 2% dividend stock is reasonable for a growth firm. I’d continue to hold these shares while market conditions remain favourable. But I’d sell quickly on any signs of a slowdown.

One stock I’m holding

AIM-listed tech stock Taptica International (LSE: TAP) won’t be everyone’s cup of tea. And I have to admit to some nerves myself when I added the shares to my portfolio last year.

One reason for this was that as a big data-powered mobile advertising company, it wasn’t easy for me to judge how sustainable Taptica’s growth will be. Sudden setbacks are not unknown in this sector.

On the other hand, the company’s strong cash generation, clean profits and high margins suggested to me that — at the right price — it could be too good to ignore.

So far, so good

It issued a statement on Thursday advising investors that full-year profits are likely to be ahead of previous expectations.

The main reason for this is last year’s $50m acquisition of video advertising firm Tremor Video, which has turned profitable sooner than expected.

A second piece of good news was that the group’s growing presence in the Asia-Pacific region generated a “significant contribution to revenues” last year.

Is the price still right?

Consensus forecasts suggest that Taptica’s earnings may have risen by 40% to 30.2p per share in 2017. That leaves the stock trading on a forecast P/E of 18.

The shares aren’t as cheap as they were, but with earnings expected to rise by another 23% in 2018, I plan to continue holding.

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The firm rents out workwear and protective wear, and provides laundry and linen hire services for the hotel, catering and hospitality markets through its Apparelmaster, Stalbridge Linen Services, Bourne Textile Services, London Linen and Afonwen brands. Much market-share growth came by buying up regional textile-related businesses, and over recent years the company sold off non-core assets – such as its interests in the dry-cleaning sector – to pay down debt and to focus on the core textile rental business.

Robust cash inflow

The most recent balance sheet for 30 June shows borrowings running just over three times the level of last year’s operating profit, which seems comfortable given the big defensive element inherent in the firm’ operations. The company derives its income from multiple smaller payments from its many customers, typically on a monthly basis. The firm’s services are essential to the smooth operation of many businesses and that happy situation leads to robust cash generation for Johnson Service. The company has a good record of steady inflows of cash that support profits well.

Over the past five years or so the share price has been moving up in a 2 o’clock direction to reflect ongoing operational progress. In early September interim results, the firm reported revenue up just over 19% compared to the year before and adjusted fully diluted earnings per share put on 16%. The directors marked the occasion by pushing the dividend 12.5% higher. The directors reckon the firm’s success during the period came from organic growth of 4.8% and from the benefits of recent acquisitions.

Ahead of expectations

Chief executive Chris Sander reckons continual capital investment is driving operational efficiencies and the firm is well-positioned to benefit from ongoing opportunities in the sector. He’s expecting the second half of 2017 to deliver good results too, and thinks the full-year outcome will be ahead of the directors’ previous expectations.

Over the last five years, the firm has emerged as a much tighter outfit focused on textile rental activities. In January, the sale of the remaining dry-cleaning business completed the company’s rebirth, and I reckon the future looks bright because a concentrated focus on a narrower sphere of activity is almost always a good thing when it comes to business. Trying to be all things to everyone rarely succeeds in generating slick finances because additional costs and inefficiencies often get in the way.

Consolidating the sector

The company says its acquisition and integration strategy as well as ongoing investment are key to future growth. The strategy has served the firm well, so far, and along with strong organic growth has put it at the top of the market in Britain. I’m optimistic that future progress will be made and that investors like us can benefit further from where we are now.

Today’s share price at around 144p puts the firm on a forward price-to-earnings ratio just below 17 for 2018 and the forward dividend yield runs at a little over 2%. Forward earnings should cover the payout almost three times. The valuation isn’t in obvious-bargain territory but I reckon it does reflect the quality of the enterprise.

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Hop on board

As profits have soared, so too has the FTSE 250 firm’s share price, rising from lows of just 43p in 2003 to today’s record highs of 1,995p. That’s all well and good for those who have kept the faith in the company since those earlier years, but what about new investors? Is it too late for them to hop on board?

This morning the business announced its preliminary results for the year ended 30 June, giving both existing and would-be investors plenty to cheer about. The group posted a 45.1% improvement in full-year revenues to £359.3m, with an even more impressive 54.9% rise in underlying pre-tax profits to £77m, from £49.7m just a year ago.

Animal welfare

I don’t see any let-up in growth for Dechra. Animal welfare is being taken ever more seriously, not only in Western countries, but also in the developing world. So not only is the company continuing to launch new products, it’s also pressing ahead with plans to expand its geographical reach.

For me, Dechra remains a good long-term buy given the potential for further growth and expansion. From a valuation perspective, a forward P/E ratio of 27 may look expensive, but I believe it’s a price well worth paying given the healthy outlook.

Out with the old

Another Cheshire-based firm reporting today was Johnson Service Group (LSE: JSG). Half-year figures for the textile services business revealed another strong performance, with revenues increasing by 19.3% to £138m, driven by strong organic growth of some 4.8% and a full six months of trading from the acquisitions completed in 2016. Adjusted pre-tax profits increased by 23.5% to £16.8m from £13.6m after net finance costs of £1.8m, which were £100k lower than in the previous year.

In a separate statement the AIM-listed group announced the departure of its CEO, Chris Sander, who after 33 years will be retiring in the first half of 2018. Its seems Mr Sandler is leaving on a high with the business in excellent shape and very well placed for continued growth.

More focused

The decision earlier this year to forsake its 200-year-old Johnson Cleaners business was a bold but necessary one in my opinion. By the company’s own admission, the dry cleaning market has been challenging in recent years, and the disposal leaves the group free to concentrate on its higher-margin textile rental businesses.

There’s still plenty of opportunity in this market for both organic and acquisition-led growth and I see a P/E rating of 17 as a very reasonable price to pay for what is now a much more focused business.

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The company’s secret has been its diversified business model that offers not just the usual construction and infrastructure services, but also higher margin services such as fitting-out offices, maintaining properties and partnering with councils to build and redevelop housing stock.

In the six months to June the benefits of this model were clear as revenue from each of its business lines increased by at least 9% year-on-year (y/y) with total sales for the period rising 14% y/y to £1,307m. An improvement to margins across each business line, as well as above group average growth from the higher-margin office fit-out division, led to group operating margins rising from 1.6% to 1.9% y/y and overall operating profit rising to £24.9m.

Looking ahead, there’s reason to be confident this performance can continue as the group order book has risen 5% to £3,800m with 68% of this order backlog for 2018 and beyond. Most encouraging is the fact that the fit-out business backlog rose 22% y/y to £568m, which is important as this is the group’s most profitable business with operating margins of 4.3% in H1.

And while Morgan Sindall is still exposed to the health of the broader construction market, I like that its founder and CEO John Morgan has both skin in the game with a 10% stake, and a conservative approach with net cash at period-end a very health £96m. All these positives mean the company’s shares are pricier than rivals’ at 13.7 times forward earnings, but they still offer a nice dividend that currently yields 2.45% and is growing by double-digits. I’m not sure I’d invest in a construction company at this point in the economic cycle, but if I did, Morgan Sindall would be at the top of the list.

Cleaning up 

Another under-the-radar stock that’s been performing well is workwear and hotel and restaurant textile renter Johnson Service Group (LSE: JSG). Shares of the company are up in value over 45% in the past year thanks to double-digit revenue and profit growth from acquisitions and organic growth.

In 2016 this combination helped boost sales by 36.4% y/y while synergies related to acquisition integration and increased cross-selling opportunities boosted operating margins to 16.2% and increased adjusted operating profit by 45.6% y/y to £37.7m.

There’s considerable room for both sales and margins to continue their upward trend as the group uses its increased scale to target larger customers, pursue further bolt-on acquisitions and drive down supply costs through increased bargaining power. The group is already setting the stage for this future growth by investing in its factories to both increase efficiency and expand production capacity.

However, after appreciating so quickly over the past year, the company’s shares are looking quite pricey at 17.1 times forward earnings. While the company is growing nicely, this valuation is above the group’s historic average and means would-be investors should exercise caution.

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JSG declared that it “has continued to trade very well in the first half with the results for the full financial year now expected to be slightly ahead of management expectations.”

The textile rental provider added that it “is very well placed for the seasonally busy summer months following the successful completion of two major investment programmes at the Southall and Chester factories.”

Textiles titan

JSG has long proven to be a reliable earnings generator, and City brokers expect this trend to continue, albeit at a slower pace. Expansion of 3% is pencilled-in for 2017, and an extra 4% rise is anticipated for next year.

Current projections create a forward P.E ratio of 16.7 times, peeking outside the widely-regarded value yardstick of 15 times or below. But I believe this still provides an attractive entry point given the strong possibility that JSG’s profits forecasts will be upgraded in the weeks and months ahead.

A combination of strong organic growth and shrewd M&A activity has helped propel JSG’s bottom line in recent times, and revenues grew an eye-popping 36% last year to £256.7m.

Indeed, the acquisition of Zip Textiles, Afonwen and Chester Textiles last year has further enhanced the company’s position in high-growth, high-margin areas like the hotel linen rental segment, not to mention bolstering JSG’s production capacity and geographic footprint.

And with the firm continuing to invest huge sums across the business, I reckon JSG should remain a go-to growth generator for some time yet.

Brand behemoth

Household goods colossus Reckitt Benckiser (LSE: RB) is another proven growth winner that should keep on pleasing investors in the years ahead.

The London manufacturer is expected to keep earnings expanding by double-digit percentages with advances of 11% in both 2017 and 2018. And in my opinion a prospective P/E ratio of 22.7 times is a bargain given the brilliant pricing power of labels like Nurofen, Strepsils and Durex. These are high-margin products that can be sure to keep group earnings marching higher even if broader economic turbulence dents consumer appetite.

On top of this, of course, it can look to its sprawling presence in developing regions to deliver stellar long-term returns. The company saw like-for-like sales in these territories rise 4% during January-March, to £869m, and I expect turnover to keep striding higher as personal wealth levels in these regions steadily improves.

Reckitt Benckiser is also engaged in massive restructuring to hive off its underperforming food business, and bolstering its position in the fast-growing consumer health segments through new product launches and acquisitions like that of US-giant Mead Johnson. I reckon the firm is in great shape to keep delivering brilliant earnings expansion.

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Strong profit growth

£478m cap office services provider Restore (LSE: RST) has two divisions: Document Management and Relocation. As it sounds, the former is mostly concerned with providing both physical and cloud storage for important papers and evidence. The latter helps businesses of all sizes in moving IT systems while also providing data destruction and hardware disposal services. 

If what the company does has you reaching for a pillow, the performance of its shares since last May should jolt you awake. In 12 months, shares in Restore have climbed 34%. Go back even further and since the aftermath of the financial crisis, they’ve returned more than 2,100% in capital gains alone.

March’s full-year results made reference to group revenue increasing 41% to just over £129.4m with group adjusted operating profit before tax rising by the same percentage to £23m.

Broken down, performance at Document Management was particularly strong with revenue jumping 65% and adjusted operating profit up 46%. Going forward, the recent acquisition and integration of PHS Data Solutions should help generate healthy returns for the scanning and shredding elements of this division.

Although not quite as impressive, market-leading Relocation still managed to grow revenues by 6% and adjusted operating profits by 17%.

On 20 times 2017 earnings, Restore’s shares may not be cheap but I think this might be a price worth paying for such a reassuringly stable company. Although a yield of just under 1.2% is fairly negligible, it’s worth mentioning that the dividend was hiked by 25% last year — a clear sign of confidence.

With analysts predicting this year’s net profit to be over four times what it was in 2015, I think Restore still offers considerable upside.

Significant progress

Textile rental firm, Johnson Service Group (LSE: JSG) gives investors another chance to benefit from a fairly dull but profitable niche.

In 2016, Johnson’s revenue grew 36.4% to £256.7m with adjusted profits before tax coming in at £33.8m — just over 45% higher than in 2015. While some of the latter can be attributed to organic growth, the company’s bottom line also benefitted from strategic acquisitions in the hotel linen rental market which were “immediately earnings enhancing”.

Last Thursday’s AGM statement reflected that the business remains “on track” to meet management expectations for the year while reiterating that January’s disposal of its underperforming retail dry cleaning business now allows Johnson to focus on expanding its higher-margin textile rental operation. 

Given recent numbers and outlook, it’s unsurprising that shares in the £487m cap have become more popular. They’re up 43% since May last year.

Any drawbacks? Well, Johnson did have £99m of debt on its books at the end of 2016 (compared to £20.6m net profit). A yield of 2% will also be of little interest to income investors, even if dividends have been subject to consistent double-digit hikes over the last six years (including 19% last year). 

That said, at 17 times earnings for 2017 — assuming 31% growth is achieved — Johnson Service Group still looks reasonably valued and should appeal to those who, while attracted to smaller companies, still prefer those offering relatively low capital risk.

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