As the WH Smith share price falls 4% on annual results, is it still worth considering?

WH Smith took a hit after this morning’s results left shareholders unimpressed. With the share price down 4%, Mark Hartley considers its future.

| More on:
A young woman sitting on a couch looking at a book in a quiet library space.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The WH Smith (LSE: SMWH) share price plunged 4% in morning trading Thursday (14 November) after its full-year 2024 results failed to impress. The high street segment dragged down results for the popular UK stock, which were otherwise good in its travel division.

It noted a 16% rise in annual profits with underlying pre-tax profits of £166m for the year to 31 August. This was up from £143m in 2023. Total group revenue increased 7% to £1.9m.

Transport hub locations saw a 15% rise in trading profits but earnings were flat in high street stores. It’s already closed 14 such stores and is in discussions regarding the lease renewals of 100 more. It plans to open 40 new transport-related stores this financial year.

“As we grow travel, the high street division will become a smaller part of the overall group”, it said in today’s results.

A key announcement was a 16% increase in the total dividend. The new final dividend of 22.6p will bring the total up to 33.6p for the year. The dividend yield now stands at 2.4% and with a 64% payout ratio, dividends look sufficiently covered by earnings.

Steady expansion

Since opening one of the first-ever platform-based newsstands at Euston station in 1848, WH Smith has become synonymous with railway shops. For 176 years, it’s been selling newspapers, magazines and snacks to commuters. In that time it’s expanded to include high street stores, airports, hospitals and motorways.

Yet the basic business model of selling reading material and confectionary at transport hubs remains largely unchanged. Now with over 1,700 stores worldwide, it’s grown into a £1.7bn FTSE 250 company.

Over the years, the business has attempted several means of expansion, including a travel division, DIY chain and record store. Many of these failed or were eventually sold, but ones that stuck include Marshall Retail Group, curi.o.city gift stores, and the airport electronics chains InMotion and Tech Express. 

These have helped it find a foothold abroad in the US, Canada, Australia and South East Asia.

Risks and growth potential

A key risk with WH Smith is both the cyclical and unpredictable nature of travel. Naturally, the pandemic hit the company hard, shaving 65% off the share value. But similar hikes and dips occur with events like the Paris Olympics, football’s Euros and general changes in consumer travel habits. A continued decline in high street store revenue could also hurt the share price.

Earnings are forecast to grow 87%, giving it a forward price-to-earnings (P/E) ratio of 14, below the industry average of 17.2. The average 12-month price target from 13 analysts is £15.82, a 21.6% rise from the current level.

Debt remains high, at £481m, giving the company a debt-to-equity ratio of 144.9%. This is a bit high but it’s manageable. Operating income’s 3.6 times interest, so that’s sufficiently covered.

All things considered, it appears to be in good shape. Sadly, my investment budget for this year’s maxed out but with a decent valuation and moderate growth potential, I think the stock’s worth considering.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Mark Hartley has no position in any of the shares mentioned. The Motley Fool UK has recommended WH Smith. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

How I’d use an empty Stocks and Shares ISA to aim for a £1,000 monthly passive income

Here's how using a Stocks and Shares ISA really could help those of us who plan to invest for an…

Read more »

Investing Articles

This FTSE stock is up 20% and set for its best day ever! Time to buy?

This Fool takes a look at the half-year results from Burberry (LON:BRBY) to see if the struggling FTSE stock might…

Read more »

Investing Articles

This latest FTSE 100 dip could be an unmissable opportunity to pick up cut-price stocks

The FTSE 100 has pulled back with the government’s policy choices creating some negative sentiment. But this gives us a…

Read more »

Investing Articles

The Aviva share price just jumped 4.5% but still yields 7.02%! Time to buy?

A positive set of results has put fresh life into the Aviva share price. Harvey Jones says it offers bags…

Read more »

Investing Articles

Can a €500m buyback kickstart the Vodafone share price?

The Vodafone share price has been a loser for investors in recent years, and the dividend has been cut. We…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Growth Shares

3 mistakes I now avoid when choosing which growth stocks to buy

Jon Smith runs through some of the lessons he's learnt the hard way over the years about what to look…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Should I follow Warren Buffett and sell my favourite shares?

Billionaire US investor Warren Buffett has been selling tons of Apple shares and other stocks of businesses he thinks are…

Read more »

Investing Articles

As like-for-like sales continue to fall, is the B&M European Value Retail SA (LSE:BME) share price a bargain?

B&M European Value Retail is known for its low prices, but could growing like-for-like sales make the share price the…

Read more »