11th Sep 2024 10:00
(Alliance News) - A combination of strong trading and shareholder returns at WH Smith PLC drew praise from analysts on Wednesday.
In a trading update, the Swindon-based travel operator and retailer announced a GBP50 million share buy back, and pledged further returns to shareholders amid strong trading.
In the fourth-quarter ended August 31, group revenue rose 6% on-year, while like-for-like revenue advanced 4%. For the full-year, revenue was 7% higher, rising 5% like-for-like.
In Travel, full-year like-for-like sales increased by 7% and by 6% in the fourth quarter. But high street sales fell by 2% for the full-year and 3% in the fourth quarter.
Overall, WH Smith expects the outcome for the year to August 31 to be in line with expectations.
Shares in WH Smith jumped 13% to 1,384.00 pence each in London on Wednesday morning.
"We have ended the financial year in a strong position, delivering a performance in line with our expectations with good growth across our Travel businesses. Our UK division performed particularly well over the peak summer trading period," Chief Executive Carl Cowling said.
"We are also today announcing the launch of a GBP50 million share buyback, which reflects strong ongoing cash flow, the receipt of the pension fund buyout cash return, as well as the strength of our balance sheet, with leverage now within our target range."
WH Smith said it intends to return surplus cash to investors in line with its capital allocation policy, which includes a targeted leverage range of 0.75 times to 1.25 times. At August 31, WH Smith said its leverage was around 1.4 times.
WH Smith said a buy-in of its defined benefit pension scheme has been sealed, resulting in a cash refund to the company of GBP75 million, and a transfer of an investment fund of GBP10 million "which will convert to cash over the next two years".
Including this, the retailer estimated its leverage would fall to 1.1 times.
John Moore, senior investment manager at RBC Brewin Dolphin, said the update is about "ongoing progress".
"The travel business continues to book strong growth, while the high street operation's performance is declining, but in line with expectations. Revenue growth, profitability, and the steps taken by the management team are all pointing in the right direction after a tricky few years during the pandemic and its immediate aftermath."
He said that, with the share price less than half of its pre-Covid peak, WH Smith remains cheap.
"But, with a reasonable dividend in place, a number of self-help measures underway, and a share buyback programme pencilled in for later this year, that could change in the not-too-distant future," Moore suggested.
Barclays raised its share price target to 1,590 pence from 1,535p before.
"Whilst the update does not prove conclusively that the US growth rate will continue to improve from here, we consider this a clear step in the right direction, and an endorsement of the investment thesis."
"We believe that the combination of investing in the business, along with a clear intention to return surplus cash to shareholders, [is] attractive".
The broker reiterated an 'overweight' rating.
Goldman Sachs increased its share price target to 1,640p from 1,540p and reiterated a 'buy' rating.
WH Smith announces annual results on November 14.
By Jeremy Cutler, Alliance News reporter
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