Must read: Bellway, WH Smith

Photo: John Keeble/Getty Images.

Two beleaguered FTSE 250 stocks release trading statements next week.

Bellway trading statement – Tuesday 9 June

It has been a torrid time for the housebuilding sector and Bellway (LSE:BWY) is no exception. Higher for longer interest rates have joined a list of headwinds, such as consumer sentiment, which has been in the doldrums for some time. In addition, there have been increasing calls from the sector for the government to accelerate the proposed relaxation of planning regulations, which is far from taking full effect. There are also general affordability concerns, particularly for first-time buyers, which need to be addressed to give this cyclical sector an overdue boost. 

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At its half-year numbers in March, the group warned of an uncertain outlook given the ongoing conflict in the Middle East. It nonetheless reported what it described as a “robust” performance, with an increase in both average selling prices and home completions. Underlying operating profit grew by 1.5% to £159 million, although operating margin slipped to 10.5% from a previous 11%. 

Bellway estimates that full-year underlying operating profit to be between £320 and £330 million, with completions expected to fall in a range of 9,300 and 9,500 homes. The group pointed to its strong balance sheet, which carries modest net debt of £72 million and remains committed to capital efficiency and shareholder returns. Indeed, an increase to the dividend led to a current yield of 4%, which is of some attraction to income-seeking investors.

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For this update, there will be much attention focused on the success or otherwise of the vital spring selling season, which in turn will provide a gauge on whether consumer sentiment has held firm. In addition, any updates to the group’s current outlook will drive investor sentiment, be that positive or negative. 

Despite its measured progress, the share price tells the story for Bellway. The shares have fallen by 34% so far this year, and remain 54% lower than their pre-pandemic peak in February 2020, which underlines the scale of the revival needed for the group to regain its former glories. 

WH Smith trading statement – Wednesday 10 June

WH Smith (LSE:SMWH) is still reeling from a previous annus horribilis for the group, where an overstated profit forecast led to a sharp decline in the share price and with the CEO unfortunately falling on his sword as a result.

The drop in investor confidence has left WH Smith with a mountain to climb. Unfortunately, its latest half-year numbers in April were accompanied by a profit warning and the suspension of dividend payments, which led to a decline of more than 11% for the shares on the day.

Its outlook guidance for the full year stated that it expects to report pre-tax profit of between £90 million and £105 million, compared to its previous estimates in a range of £100 million to £115 million. It also reduced revenue growth forecasts to be between 3% to 5%, from the 4% to 6% stated in December. For the half-year, a decline in pre-tax profit to £3 million compared to £21 million in the corresponding period mean that even the revised guidance could be stretching.

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That the previous accounting error should have occurred in the North American unit came with some irony, as the group had previously highlighted the substantial potential, where passenger numbers were forecasted to grow in air travel 2.5 times before 2050, and where the group was observing more opportunities for airport retailing. At 27% of group revenues the error is material and to some extent transformational, as WH Smith has put the scope of the InMotion business under review, although it remains fully committed to Travel Essentials.

The financial oversight also undid any of the group’s recent progress. WH Smith previously announced the sale of the high street business, a strategically sound move which established a clear direction of travel for the remaining units, leaving the group as a “pure play travel retailer”.

In turn, what was a burgeoning business could then benefit from what the company describes as “structurally advantaged growth markets”. WH Smith benefits from captive customers in many of its key sites, such as railway stations, motorway services, hospitals and, in particular, airports, which sets it aside from much of the retail competition. The return of near normality in air travel was previously a particular boon to this segment of the group.

Unfortunately, the group has inevitably been impacted by the wider economic uncertainty, especially in its key UK and North American markets. At the same time, part of its product suite such as books can be purchased online prior to travel, while an increasing international business adds the potential complication of currency headwinds. These factors are quite apart from the growing competition for share of customer spend, especially at railway stations and airports

The recent reaction to the group’s update were proof, if it were needed, that investor confidence is sorely lacking. The shares have fallen by 52% over the last year and are 80% lower than the pre-pandemic glories of December 2019. With so much investor damage to repair, the pressure is on WH Smith to stem the decline.