WHSmith half-year profits up 11%: What the analysts say

“The WHSmith investment case continues to evolve. On the high street investment into service aided like-for-like growth and winning 60 Post Office contracts is a major coup. The shares are not cheap but have a genuine growth angle. We knew that sales growth had been strong, so the news is that profit delivery was too. Of greatest interest to us is the international part of the travel arm, which saw 25% sales growth of which 9% was like-for-like. A further 17 sites have been won in the half but the most significant are Düsseldorf and Alicante. Both are the first sites won in their respective countries and this says to us that the WHSmith travel pitch book is getting stronger. When the demerger comes, which it surely will, the international prospects will come even more to the fore.

“WHSmith already has 107 Post Offices in its stores and has won another 60. Footfall is high in these outlets and it is another driver of growth. However, it is interesting that management is a little less upbeat about the Cardmarket trial, which has been paused. Card Factory is a tough competitor and management is not renowned for throwing good money after bad: this might be one WHSmith trial that has not worked.” – Jonathan Pritchard, Peel Hunt

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“Today’s update continues a strong run for WHSmith and should be well received by the market. The outlook statement remains positive and we believe the business offers high earnings visibility supported by both the travel roll-out and stable high street operations. The high street performance was supported by a key five-week period over Christmas when like-for-likes increased 2%. Further key positives include a new commercial deal with the Post Office to relocate 61 outlets to WHSmith stores. Good progress has been made with the WHSmith local proposition (franchise newsagents), although a decision has been made not to roll out the Cardmarket proposition at this stage.

“Stationery remains the star performer with like-for-likes growth +5% and a gross margin increase”

Adam Tomlinson, Liberum

“Management has an excellent track record of growing profit per square foot through best-in-class space and category mix management and tight cost control. Stationery remains the star performer with like-for-likes growth +5% and a gross margin increase. A strong focus on range and quality and additional space allocation has supported this. Books has seen some stabilisation as children’s books and adult colour therapy continue to drive sales.” – Adam Tomlinson, Liberum

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“The only real news here in our view is that the international travel division has signed up to sell in Alicante and Düsseldorf airports. From a personal point of view the former is currently not well served and the arrival of WHSmith should be very positive. More generally these airports mark a new phase in our view. Alicante could be argued as an extension of the policy of chasing English speaking tourist trade. But clearly it could have a longer term resonance in the totality of Spain’s airports. These moves indicate greater confidence and underline the potential numeric significance of international travel. Obviously the summer travel season still has to be delivered but the signs look good with a shift in British travel destination to Iberia noted away from perceived less secure longer haul destinations.

“Overall there continues to be much to applaud here in terms of execution and business development. Management is excellent”

Tony Shiret, Haitong Research

“Overall there continues to be much to applaud here in terms of execution and business development. Management is excellent. The overall strategy of controlled profit expansion supported by capital repatriation continues to work well and has been increasingly adopted by other retailers in the sector. Our only reservation is in terms of the valuation which has moved far ahead of the peer group. The long-term short position in the shares is now at more manageable levels and we find it difficult to justify the valuation despite the strength of the company.” – Tony Shiret, Haitong Research

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“Another consistent first-half performance from WHSmith, in line with expectations. We have been long-term buyers of WHSmith, attracted by its strong cash generation and the growth in travel opportunity, which have not changed. However, there are more attractive opportunities elsewhere in the sector. For the shares to materially push on from here over the next 12 months, we believe there would need to be mergers and acquisitions activity in the travel business. The company stated it has no plans currently to roll out Cardmarket from the current 30 units as this would require significant additional sales.” – Kate Calvert, Investec