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WH Smith recovery kicks in

The increasing pace of US expansion, plus a return in travel footfall, proves a boon for the venerable newsagent
April 20, 2023
  • Pace of US expansion increases
  • Travel footfall proves resilient

WH Smith (SMWH) has gained a reputation as a business that seems to defy the prevailing trends in retail and the reading public to register consistent growth across its retail estate. While the internet can deliver greetings cards and stationery with little trouble these days, travellers in airports and railway stations seem more than happy to quickly find something to read as an alternative to boredom. However, notable in these results is the extent to which WH Smiths’ US expansion is starting to deliver tangible results.

In the US, boosted by a total of 29 store openings and a recovery in travel footfall, revenues were 53 per cent higher at £177mn, with new openings in key locations such as LaGuardia airport in New York. As a result, trading profits doubled to £16mn. This contrasts notably with the gentle decline of the UK high street market, where sales edged lower to £266mn (from £270mn in 2020) and trading profits dipped a fraction to £32mn. Total profits in the travel division more than tripled to £49mn, however, as holidays and business trips returned during the half.

WH Smith is an interesting case study in the value of careful capital management and allocation. For example, depreciation and capital expenditure charges balanced each other exactly during the half at £60mn, with management prioritising spending on airport locations where returns are greatest. Smiths already has a 13 per cent share of the US airport market by store coverage.

The company’s basic resilience has made an open grave of our sell predictions over the years. While a forward price/earnings ratio of around 19, according to RBC Capital Market estimates, is expensive by retail standards, some businesses simply defy gravity. Hold.

Last IC View: Hold, 1,394p, 11 Nov 2022

WH SMITH (SMWH)   
ORD PRICE:1,596pMARKET VALUE:£2.1bn
TOUCH:1,595-1,59712-MONTH HIGH:1,728pLOW: 1,110p
DIVIDEND YIELD:1.1%PE RATIO:31
NET ASSET VALUE:232p*NET DEBT: 303%
Half-year to 28 FebTurnover (£mn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
202160818.09.200.00
202285945.024.68.10
% change+41+150+167-
Ex-div:13 Jul   
Payment:3 Aug   
*Includes intangible assets of £527mn, or 403p a share