Interactive Investor

WH Smith bucks trend as FTSE 100 lurches lower again

31st May 2023 08:08

Richard Hunter from interactive investor

The country's favourite newsagent has successfully expanded overseas and is reaping the benefit, but the wider stock market is struggling again amid a slew of persistent concerns. Our head of markets explains.

    The travel business remains the driving force behind WH Smith (LSE:SMWH)’s fortunes, and with the peak summer season approaching, the group is setting out its stall in anticipation.

    The group’s largest division, Travel UK, saw revenue growth of 24% over the latest quarter, driven by recovering passenger numbers, category expansion and the ongoing popularity of “InMotion”, the group’s one-stop shop providing a range of products from the traditional books to health, beauty and technology.

    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 has been a particular boon to this segment of the group. 

    With the North American and Rest of the World travel units contributing revenue growth of 26% and 79% respectively in the 13-weeks to 27 May, the overall figure for the group’s travel businesses comes in at being ahead by 31%, with the High Street division reporting rather more pedestrian growth of 2% for the period.

    Nor does the group intend to let up on its ambition to become a global travel retailer, with new openings in Newark and Kansas airports performing well, and with a strong pipeline and active discussions continuing elsewhere for further expansion to its global reach.

    As such, the group’s outlook is positive ahead of the peak summer trading season, and its expectations for the full-year results have modestly improved since the last update in April. However, despite the progress, the share price remains shy of pre-pandemic levels by over 40%.

    Of late, the shares have dipped in line with the pressure being experienced by the broader, more domestically focused FTSE250. The 3% decline over the last three months has contributed to the shares being lower by 5% over the last year, as compared to a decline of 8% for the wider FTSE250.

    Even so, the opportunities which both recovering passenger numbers and international expansion provide are pivotal and promising for prospects, and the market consensus of the shares as a 'buy' reflects confidence that the shares can continue the recent momentum.

    Market snapshot

    US markets were mixed overnight and are likely to remain so until the debt ceiling agreement in principle becomes an agreement in fact.

    Even then, interest rate concerns continue to linger in investors’ minds. Not only is the likelihood of a further hike by the Federal Reserve largely priced in for the June meeting, there is an increasing feeling that further rises could yet follow, as opposed to the previous hopes for Fed cuts before the year is out.

    The continuing resilience of the economic data which is coming through could prompt the Fed to complete its aim of containing inflation during a time where the wider economy seems strong enough to take the blows.

    Stock specifically, NVIDIA Corp (NASDAQ:NVDA) continued its recent ascent and briefly joined the upper echelons of companies with a market capitalisation in excess of $1 trillion. As such, the Nasdaq posted a gain for the day although weakening somewhat towards the end of the session, with the other indices flat to lower.

    The net result is that the Nasdaq remains the star of the show as investors have flocked towards its newly-found haven status and further driven by Artificial Intelligence growth prospects. In the year to date, the index is now ahead by 24%, while the S&P500 has added 9.6% and the Dow Jones has marginally slipped by 0.3%.

    The broader concerns filtered through to a weak opening in the UK, which was further buffeted by a poor showing from Asian markets overnight after the latest manufacturing data from China disappointed, adding further fuel to worries that the economic recovery could be stalling.

    In these circumstances, overseas earnings exposure can be a double-edged sword, with recessionary fears in the US and the potential for weakening demand in China both weighing on the premier index.

    As such, the FTSE100 dipped in early exchanges, with largely Asian reliant businesses such as Prudential (LSE:PRU), Standard Chartered (LSE:STAN) and Burberry Group (LSE:BRBY) bearing the brunt of early selling pressure.

    Reports that Entain (LSE:ENT) could be facing a “substantial financial penalty” over its former Turkish business added to the decline, with some selective buying of defensive stocks insufficient to offset an overall drop which leaves the FTSE100 having surrendered previous gains and all but flat in the year to date.

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