Investec upgrades WH Smith, highlights global travel market potential

WH Smith got a boost as Investec lifted the stock to ‘buy’ from ‘hold’ and bumped up the price target to 1,900p from 1,550p.

“With Travel now accounting for 58% of earnings before interest and taxes (FY16) and 25% of its Travel outlets based internationally, we believe WH Smith’s equity story is evolving into a play on a structurally growing global travel market.”

The brokerage reckons Travel could contribute around 70% to group profits in five years, with the company set to see an increase in its sustainable growth rate, helped by a higher proportion of directly run outlets. This should drive a higher rating, Investec said.

Its in-depth analysis of WH Smith’s International portfolio and historic development shows it has gained critical mass in several major geographies, such as the Middle East and Australia.

“The company is starting to have its early contract wins renewed and has recently won a number of ‘game changing’ contracts (Germany and Spain), which opens up the European Travel market. It has also won 10 units in Singapore, the sixth busiest International airport in the world.”

At 0900 GMT, the shares were up 3.5% to 1,682p.