On Monday, HSBC (LON:HSBA) updated its financial outlook on Johnson Service Group Plc (LSE:JSG), adjusting the company's price target slightly to £1.43, up from the previous £1.42, while maintaining a Hold rating on the stock.
The adjustment comes after a review of Johnson Service Group's 2023 results and revised management guidance. The bank's analysts have decided to keep their adjusted earnings per share (EPS) forecasts for 2024 and 2025 largely the same. However, they have opted to reduce the target enterprise value to earnings before interest, taxes, and amortization (EV/EBITA) multiple to 12 times, down from 13 times. This valuation still represents a modest premium over the textile rental peer group average, which now stands at 11.3 times, compared to 12.5 times previously. It is also slightly below Johnson Service Group's own pre-pandemic average of 13.2 times.
The new price target of £1.43 is based on the bank's 12-month forward estimates and suggests approximately a 12% upside potential from the current share price. HSBC's decision to retain the Hold rating reflects a viewpoint that the risks and rewards for investing in Johnson Service Group are balanced at this time. The recent recovery in the company's valuation indicates improving operating conditions and diminishing risks of a recession. However, the bank also notes potential short to medium-term challenges for the company's margins.
The note from HSBC concludes by stating that a quicker than anticipated improvement in profit margins could lead to a more positive stance on the stock in the future.
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