Sunday 17 December 2017

Read all about it: WH Smith shows print era is alive and kicking

WH Smith and its shares performed well last year

Dr John Lynch

I'm a huge fan of investing 'by looking around'. There is nothing better than the evidence of one's own eyes to prove that something works. And if you happen to be a customer, you like the product and all those around you seem to like it too, then there is a really good chance it's an investible commodity. Anybody who doubts that piece of homespun investment philosophy might do well to check out the first 250 years of Arthur Guinness.

These days I probably do far too much 'looking around' in airports and would be very unobservant if I did not see the WH Smith logo around every corner. Wherever I go, the group seems to have the concession for the sales of paper, books and magazines.

WH Smith goes back to the distant past. It claims to be 222 years old and still in its original business, flogging newspapers. A Smith family member has been chairman continuously for a staggering 180 years, and it has provided a director for more than 200 years. This rather unique claim disputes the revered old 19th century proverb that said it took only three generations to go 'from clogs to clogs'.

WH Smith's boast is that it sells 30 million books per annum and 52 million magazines each year, and is valued at £1.3bn (€1.6bn).

While airports are now the place to find the brand logo, it was once synonymous with railways around Britain. That was the case for much of the 19th century railway boom and until the company had a row with the railway authorities and was unceremoniously dumped. Undeterred, it opened its new retail establishments outside the rail stations and the railways were left to see the joke. Smith was also a very large transporter of newspapers. It was quite big in that business till it was demerged in 2006.

Today, WH Smith is a significant retailer in the UK and listed on the London Stock Exchange. It operates more than 1,200 outlets and has two core businesses: high street and travel. In addition it has a greeting card website 'funky pigeon'. The high street operation has three million square feet of selling space, and includes 615 outlets selling from its own shops, shopping centres and hospitals.

High street sales last year were £726m, down by 7pc and profits of £56m were up 4pc. Interestingly, the company is of the opinion that the new battlefield in high street is in the use of technology and how it handles its warehousing problems. There is a lot of focus on that challenge in the retail sector at the moment. It is a preoccupation shared by the likes of Argos and John Lewis.

WH Smith Travel has 673 outlets, with 100 outside the UK. Travel operations are run separately from the high street operations.

The operation generates sales of £460m, down 4pc and profits of £66m, up from £63m. Examination of WH Smith's financials show the company has a strong balance sheet and is cash generative. Last year, the group's revenue was £1.2bn, down 5pc; however, profits before tax were up 6pc to £108m.

Like many companies written about in this column over the past year WH Smith has a share buyback programme. It returned £50m to its shareholders and has indicated that a further £50m is available this year. Surprisingly, over the past seven years the company has returned a considerable £560m to its shareholders, about half the current market value of the company.

Earnings per share rose by 15pc last year, reflecting the increase in profit, a reduction in the tax rate and the lower number of shares following the buyback programme.

The company also has a cost control as a core part of its strategy and it delivered £18m last year, and has identified another £10m which could be available in the current year. The share price of £11 is down from its recent 10-year record of £12.46 and above its yearly low of £6.80. WH Smith and its shares performed well last year – perhaps the age of print is not over yet?

Nothing published in this section should be taken as a recommendation, either implicit or explicit, to buy or sell any of the shares mentioned

Irish Independent

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