Shares digital

by John Marshall

Analysts have come out in strong support of retailer WH Smith after half-year figures from the company underlined the progress being made.

Jonathan Pritchard of Oriel Securities, Demetri Mavridoglou of UBS, and Charles Nichols of Landsbanki have all told clients to carrying on buying the stock, with profits from the company’s high street and specialist travel outlets surpassing estimates by around a £1 million. This saw overall pre-tax profits of £64 million beat Pritchard’s own interim forecast by a full £4 million. The analysts also pointed towards well-managed costs and borrowings by the company during the period.

WH Smith recently unveiled two deals that City number crunchers believe will add real value to its travel arm, significantly increasing the scope which ‘continues to earn an attractive return on capital and enjoys high barriers to entry,’ says Pritchard, as well as boosting passenger numbers.

While the main high street operation conrinues to face a stiff consumer spending headwind, Pritchard believes there is scope for further cost savings and gross margin improvements.

He is forecasting strong earnings growth going forward, with 36.6p pencilled in for this year, rising to 46.5p by 2009/10, an ambitious 27% hike, which is not, he argues, reflected in the current PE of just over 10.

The writer holds shares in this company