Must read: WH Smith, Currys, Bank of England

CURRYS HALF-YEAR – THURS 18 DEC

Richard Hunter, Head of Markets, interactive investor, says, “Currys (LSE:CURY)’ latest trading update in September revealed a group continuing on its upward trajectory with some more solid growth, while the announcement of a £50 million share buyback programme was further evidence of management confidence in prospects.

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Like-for-like revenue growth of 3% for the group was achieved despite the prevailing economic headwinds. In the UK and Ireland, the group had previously echoed the concerns of many retailers following the measures announced in the Budget. Currys estimated an additional £32 million in annual costs, which will inevitably lead to some product price rises, while also increasing the possibility of lower investment and hiring, as well as increased automation and offshoring.

Currys is now targeting higher margin revenue streams which also bring recurring income, such as its mobile plans, Care and Repair, credit provision and protection plans. The mobile business previously saw an increase of 22% taking the subscriber base to over 2.3 million as the pricing point offered clearly resonated with the more cost-conscious consumer, while its credit adoption numbers rose by 1.9% to 23.3%. The group’s omnichannel offering continues to bear fruit, and indeed two-thirds of customers prefer to shop in store, partly as a result of the expert advice available on a face-to-face basis. This can also lead to a longer relationship with the customer as well as the potential of cross-selling.

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There are some promising signs also in the Nordics region, suggesting that an emerging turnaround may be in place. The region has been a particular thorn in the side for Currys and since it accounts for around 40% of overall revenues, the impact on the group is material. Revenue growth of 2% on a like-for-lie basis was propelled by a focus on more profitable sales alongside some ongoing tight cost control. Similar to the UK and Ireland, AI computing and new category sales were a highlight during the period.

The outlook comments in September were reassuringly confident, with full-year pre-tax profit of £170 million, further growth in its higher margin recurring revenue services and 2.5 million mobile subscribers all within its estimates.

Of course, Currys cannot guarantee an unfettered run in growing its business. Quite apart from the ongoing repair work being undertaken in the Nordics business, the outlook for the economy is currently unstable, which could crimp consumers’ propensity to spend, especially on discretionary items such as computing. However, any such concerns have not prevented investors jumping on board, with the share price having risen by 40% in the year so far, 63% over the last 12 months and by 187% over the last two years.”

BANK OF ENGLAND – THURS 18 DEC

Victoria Scholar, Head of Investment, interactive investor, says, “Markets are pricing in around an 85% chance of a 25 basis point interest rate cut from the Bank of England next Thursday, pushing the bank rate to 3.75%. In a close call in November, the Monetary Policy Committee voted 5-4 to keep the benchmark Bank Rate at 4%. Next week would mark the fourth rate cut of the year after 25 basis point reductions in February, May and August.

UK inflation fell to 3.6% in October, declining for the first time in five months, helping to pave the way for a December reduction. However, next Wednesday’s latest inflation data could be pivotal in terms of what happens next to interest rates. A softer print would provide further support for a continued dovish path from the central bank.

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The Bank of England has recently been in wait-and-see mode, holding off from further changes until after the Autumn Budget was unveiled. Overall, the chancellor’s tax increases were largely viewed as disinflationary, paving the way for continued easing of inflation and keeping the door open to further rate cuts from the central bank.

The first half of this year was marked by an uptrend for cable, driven by US dollar weakness as investors fled the greenback amid the uncertainty around Donald Trump’s tariff plans. However, the second half of the year has seen the US dollar rebound, with the pound giving back some gains. Shorter-term, cable has been regaining ground by around 1% over the past month driven by Fed rate cut expectations and softer US economic data.”

WH SMITH FULL-YEAR – FRI 19 DEC

Richard Hunter says, “It has turned into something of an “annus horribilis” for WH Smith (LSE:SMWH), with an overstated profit forecast leading to a sharp decline in the share price and the CEO unfortunately falling on his sword as a result.

The North American division accounting error related to the early recognition of supplier discounts, as opposed to being recognised in later years which would be the normal practice. As a consequence, the unit is expected to show a profit of around £25 million for the year, as compared to the forecasted £55 million. For the group as a whole, WH Smith estimated adjusted full year pre-tax profit of £110 million, well below City expectations of around £157 million.

The shares dropped precipitously as a result and are 39% down since the announcement and 44% lighter in the year to date. The slump also prevented the group from recapturing its pre-pandemic glories, instead of which the share price is 74% lower than the levels of December 2019.

The news led to the resignation of the CEO, adding another level of uncertainty to the running of the company and leaving the group with much work to do in restoring investor confidence.

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This came at a time when WH Smith was beginning to reap the benefits of its recent efforts. The sale of its high street business, a strategically sound move which established a clear direction of travel for the remaining units, left the group as a “pure play travel retailer”. 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 had been a particular boon to this segment of the group.

That the 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.”