Smaller Companies: Cleaning up with Johnson

LIKE many small firms, Johnson Group Cleaners lacks a high profile, so you would be forgiven if you didn't know that it owns the largest dry- cleaning business in the US. With 308 stores, including 10 huge drive- through outlets, however, this still only adds up to a 2 per cent share in what remains an extremely fragmented market.

The company has a 22 per cent share of the UK dry cleaning market. The remainder of its business is in textiles rental, mainly in workwear clothes with towels and dust mats accounting for the rest. Earlier this year Johnson sold off its US textile rentals business for pounds 16.9m.

The company made profits of pounds 17.5m in 1997, and stockbroker Charterhouse Tilney estimates pounds 22.3m for the current year and pounds 25.6m in 1999. The shares have historically traded at a discount to the market, and on these forecasts they are on a lowly p/e ratio of 10.5 times for 1998, and 9.2 times 1999 earnings.

With gearing after the US disposal at a mere 10 per cent, the downside risks in the company must be very limited, while there is huge room to expand through acquisition. The present year is off to a good start, with the margins in dry cleaning and textile rentals improving.

A rebranding of the UK dry cleaning business could also reap dividends, as will the introduction of a new electronic point of sales system in the outlets. The shares are a buy.