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WH Smith shares could make a Covid comeback

The retailer unveils its latest trading statement this week

Source: Bloomberg

It is sometimes said of WH Smith that if it didn’t exist, one wouldn’t invent it. However, the retailer, which is due to post a trading update this Wednesday, could be one of the Covid pandemic’s winners. The company believes that it has come out of the pandemic “operationally stronger” and with “significantly enhanced growth opportunities”.

Indeed, the high street and airport-based store made pre-tax profits of £18 million in the half-year to February 2022 compared with a £38 million loss in 2021, while revenues rose 45% to £608 million.

WH Smith well-positioned in travel market

“The Group has delivered a good performance with a strong rebound in profitability,” group CEO Carl Cowling told shareholders at the half-year results in April. “We have seen a recovery across all our travel markets despite the impact of the Omicron variant in Q2, and we are in a strong position to capture growth as the recovery continues…

“Across the globe, we continue to roll out our Travel stores across all our formats. Since the start of the financial year, we have won 74 stores, including a significant tender win in Spain, bringing the total pipeline to over 125 stores. We expect more space to become available, particularly in North America, as our markets continue to recover.”

In the years before the pandemic, WH Smith cleverly positioned itself in the travel market, focusing on airport and train terminal outlets. Encouragingly, its continued investment plan is being funded from cash flow rather than debt.

US travel market offers new opportunities

WH Smith has also opened 28 new ‘Inmotion’ technology outlets in the UK, including its reopened flagship store at Heathrow’s Terminal 5. Outside of the UK and US markets, the company has also opened an addition 11 Inmotion stores across six territories.

Meanwhile, it also says that its high street stores have shown resilience and are profitable, despite the difficulties facing the UK high street.

The travel outlet opportunity in the US is also attractive, given it is thought to be worth $3.2 billion and WH Smith has just 13% of the market.

Investors will also be looking to see how the group is holding up in the face of rampant inflation and the cost of living crisis, including rising fuel prices.

At the recent results, the company said that while there were “some uncertainties in the broader global economy” management felt it was “well positioned to capitalise on the ongoing recovery in our key markets.” WH Smith expects to feel the benefit from the return of passengers to its travel stores.

Certainly, while the airlines may be struggling to cope with the number of travellers returning to the skies, WH Smith’s airport-based stores should still benefit from the additional spending.

The share price has fluctuated this past year and, at 1,456p, is trading 45% below its three year high of 2660p. Analysts at Berenberg Bank currently have a price target of 1,900p on the shares. While another serious bout of the Covid virus could once again hit trading in the future, at these levels, WH Smith shares look an attractive buy.

This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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