Interactive Investor

WH Smith shares hit by fresh setback

1st September 2021 13:42

Graeme Evans from interactive investor

The retailer is struggling to get back on its feet after being hammered by forced closures and reduced travel during lockdown.

Investors backing the return of WH Smith (LSE:SMWH) shares to pre-pandemic levels were dealt another setback when the retailer lowered guidance on the first day of its new financial year.

The popular FTSE 250-listed stock had been at 2,420p in February 2020, only to fall to 829p three months later before rebounding above 2,000p after the discovery of Covid-19 vaccines.

Its share price performance this summer, however, has been decidedly uncertain as the surge in travel sales from the anticipated return of airport and rail passengers failed to arrive.

Shares have been stuck in a narrow range between 1,500p and 1,750p for the past three months, despite the optimism of Peel Hunt and others with targets as high as 2,500p.

The City broker scaled back to 2,300p today after WH Smith cooled expectations by warning profits for the year to next August will be towards the lower end of market expectations.

The company remains confident in revenues returning to pre-Covid levels in the next two to three years, but admits the trajectory of the recovery in travel is uncertain. It also issued a reminder about accounting finance charges relating to its convertible bond issue in April.

Breaking down the performance of its travel division, WH Smith noted that airport sales were at 30% of 2019 levels for the key months of July and August, compared with 17% across the final six months of its financial year. Rail is at 59% for the past two months.

The recovery has been much stronger in North America, where the company now has over 280 travel stores following the acquisitions of Marshall Retail and InMotion. Sales in July and August were back to 93% of 2019 levels.

The cash generative high street business, meanwhile, has been trading at about 85%, contributing to overall results for the year just ended being slightly better than forecast. The results will be published on 11 November, with Peel Hunt anticipating a £62 million loss.

The broker's profit estimate for the new year was already towards the lower end of City forecast at £79 million, but it lowered its 2023 target by £20 million from £160 million.

Over time, however, it sees no reason why the company cannot “return to past glories”.

Peel Hunt said: “We continue to believe that WH Smith will come out of the crisis a bigger and relatively stronger company.

“Market share gains are occurring already and new space is coming onstream. The news on short-term profits will hold the shares back for now, but we reiterate our “Buy” stance.”

John Menzies lifted by air cargo

Airport services business John Menzies (LSE:MNZS) is in a similar position to the owner of its old retail estate, with the Edinburgh-based company not expecting a return to pre-pandemic volumes of baggage handling and fuelling business until at least 2023.

It has been encouraged, however, by a much stronger performance in air cargo services and cargo forwarding, while actions taken at the start of the pandemic meant it was today able to return to profit with half-year earnings of 2.8p a share.

The company, which offloaded its print media and retail logistics arm in 2018, is hopeful momentum will continue in the second half after stepping up expansion in recent months including in Australia.

Chairman and chief executive Philipp Joeinig said: “We continue to win contracts, enter new markets and optimise the mix of our business portfolio.”

Shares rose 6.75p to 330.75p and are up 39% in the year to date, but Peel Hunt sees potential to reach 451p. It said: “As volumes and revenues recover, the restructured cost base and reshaped business portfolio will enable Menzies to generate structurally improved margins.”

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    UK shares
    Consumer goods and services