18th Jan 2023 14:45
(Alliance News) - Analysts at Peel Hunt crowned WH Smith PLC one of its "very top picks" following a strong trading update on Wednesday, but not all market commentators were so impress with the venerable magazine and crisps seller.
WH Smiths is a books and stationary retailer that operates on UK high streets as well as in travel locations such as airports and train stations globally.
On Wednesday it said it delivered a strong performance in the 20 weeks to January 14, with revenue up 41% against the previous year and up 20% against the pre-pandemic level.
It noted particular strength in its Travel business which saw revenue up 77% against financial 2022 and up 48% against financial 2019, which was pre-pandemic.
This was achieved, WH Smith added, despite passenger numbers remaining "well below" 2019 levels.
Shares in WH Smith were down 1.8% at 1,588.00 pence on Wednesday afternoon in London, but reached an intraday high of 1,649.50p, up 2.0% against its closing price on Tuesday.
Russ Mould at AJ Bell said Wednesday's statement showed that WH Smith is slowly returning to its usual pattern of trading before the pandemic.
"People being more willing to jet off on holiday has led to busier airports and the company's competitive position has arguably been strengthened as rival operators proved less durable through Covid," Mould said.
The AJ Bell investment director cautioned, however, that if investors look at the "fine print in these latest figures" it appears UK rail strikes have impacted its sales.
WH Smith's UK high-street operation has been "something of an afterthought" in recent years, Mould said, but that division has generated "useful cash flow to help with the running of the business and investment in the faster-growing travel operation".
"At some point a debate over the role of the high-street arm in the wider group may start to heat up, and investors may look for a sale or spin-off of a business which has very different growth prospects," he said.
For Zainab Atiyyah at Third Bridge, WH Smith's UK high street retail business is "slowly dying".
Atiyyah argued that very few people go to the high street to buy small-value items such as stationary any more, as high street retailers are coming under "massive pressure" from online rivals such as Amazon.com Inc.
The Third Bridge analyst said this situation was worsened by the current recessionary environment in the UK.
"Our experts say that WH Smith should look to get rid of a number of unprofitable sites and move into smaller stores elsewhere. Partnerships and concessions with other key brands may be another way out," she argued.
Russell Pointon, director of Consumer at Edison Group, agreed that the WH Smith's high-street division certainly faces "numerous challenges" and said investors this year will be keeping a keen eye on whether WH Smith is able to recover its standing in its traditional stomping ground.
By Heather Rydings, Alliance News senior economics reporter
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