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14 May 2020

WH Smith: Grinding to a Halt?

Saul Fulda, Investment Analyst, Redmayne Bentley

WH Smith, the international books, stationery, and magazines retailer, released its interim results this morning, but with the results only accounting for the six months to the end of February 2020, investors should be wary of the positive notes coming from the company. 

Group revenue was up 7%, driven by a strong performance in travel, with WH Smith also acquiring 12 new units in North America, boosting its international presence. Yet, the April figures paint a more realistic picture, with group revenue 85% lower year-on-year. 

Since the third week of March, all but 300 stores have been closed, and the outlook is extremely gloomy; global travel is not expected to reach its former heights until 2022-2023, while the UK government’s call for people to avoid public transport where possible will hurt the WH Smith stores located in railway stations. 

This, alongside the c.£411m net debt, and only £1m of free cash flow, adds to the negativity. Granted, the business has attempted to improve liquidity; the group has secured an additional £120m bank funding and raised c.£162m via an equity placing while the interim dividend has been cancelled. 

But the above fails to hide the underlying problems. WH Smith operates in the two sectors which are going to feel immense pain from the COVID-19 outbreak - travel and the high street - while the capital used to acquire InMotion and The Marshall Retail Group has placed additional pressures on the company. 

With WH Smith lacking a substantial online presence, and with global travel set for a lengthy disruption, the business looks like a structural loser from the pandemic. 

Please note that investments and income arising from them can fall as well as rise in value and you may lose some or all the amount you have invested. Past performance and forecasts are not reliable indicators of future results or performance. Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the companies mentioned.

 
WH Smith: Grinding to a Halt?
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