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WH Smith keeps on cutting costs

RESULTS: WH Smith has performed its usual trick of cutting costs to grow profits, despite falling sales - and the shares remain too cheaply rated
October 10, 2013

The emphasis over the past few years at high street stationer WH Smith (SMWH) has been on cost-cutting, while simultaneously using every available retail channel to keep profits flowing in the face of a declining newspaper and magazine market. That approach bolstered these full-year figures after finding another £18m of cost savings - despite the fact that like-for-like sales fell 5 per cent.

IC TIP: Buy at 895p

Still, tough conditions during the first part of the year contributed to a 6 per cent fall in the high street division's underlying sales during the period to £726m. However, cost savings helped the high street unit's trading profit to grow 4 per cent to £56m, supported by the effective management of offers and the improved buying of stock. Management said there's scope for additional savings, too, and has found a further £10m to cut - taking its target to £22m of savings for the division over the next three years. The measures under consideration demonstrate the group's strong cost-stamping instincts - for example, management is experimenting with energy efficient tills.

The travel division, meanwhile - which has an effective monopoly of sites at major transit points - delivered a 5 per cent profit increase to £66m, despite an underlying revenue fall of 4 per cent to £460m. The division has robust scope for international expansion, too, and the company plans to open an additional 20 units, to add to the 141 it already operates abroad.

The performance of the group's individual products categories didn't show much change in the period, though. For instance, underlying stationary sales fell 3 per cent, with stock control helping to keep profit margins growing. In books, the numbers were skewed by the extraordinary success last year of the Fifty Shades of Grey series - which meant a fall of 10 per cent in underlying sales this year, or 6 per cent when this effect is excluded. Meanwhile, the news market continued its long-term decline with a 4 per cent fall in underlying sales.

Bank Of America Merrill Lynch expects EPS of 74.6p for 2014, rising to 82p the following year.

WH SMITH (SMWH)

ORD PRICE:895pMARKET VALUE:£1.10bn
TOUCH:894-899p12-MONTH HIGH:919pLOW: 570p
DIVIDEND YIELD:3.4%PE RATIO:13
NET ASSET VALUE:83p*NET CASH:£31m

Year to 31 AugTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20091.3482.042.716.7
20101.3189.047.619.4
20111.2793.052.122.5
20121.2410261.526.9
20131.1810871.330.7
% change-5+6+16+14

Ex-div: 8 Jan

Payment: 30 Jan

*Includes intangible assets of £55m, or 45p a share