WH Smith reinstates dividend

WH Smith’s (SMWH) revenues returned to pre-pandemic levels in its year to 31 August, as the retailer benefited from the easing of Covid-19 restrictions. This was seen in the 131 per cent increase in travel sales, as customers accessed the company’s stores at airports and train stations once again. However, the most eye-catching figure came in the trading data for the 10 weeks to 5 November. Travel, enlarged by the acquisition of US retailer Marshall Retail Group in 2019 and despite consumer spending headwinds, continued its strong performance and posted revenue that amounted to 148 per cent of 2019 levels. This supported the return of the dividend.

The high street side of the business struggled in comparison. Sales were down by 2 per cent in the year and came in at 87 per cent of pre-pandemic levels post-period. Cash profits at the Funkypigeon.com card website fell by 43 per cent to £8mn after a cyber attack in April. However, high street trading profits still rose by three-quarters to £33mn, which was a resilient showing.

Peel Hunt analysts said that the company is “well managed, progressive and growing fast” and “longer term we think this is a top-quality business that warrants a much higher multiple”. The broker bumped up its pre-tax profit forecasts by £5mn for both 2023 and 2024, and the shares now trade at 17 times its 2023 earnings forecast. This is an undemanding rating, especially compared with a five-year average of 39 times. But with a chunky £150mn of capital expenditure (capex) planned for this new financial year and a pipeline of 150 new stores over the next three years, there is the potential for the hunt for volume to be stymied by recessionary spending habits. Hold.

Last IC view: Hold, 1,479p, 27 Apr 2022