JPMorgan Cazenove upgraded WHSmith on Wednesday to ‘overweight’ from ‘neutral’ and hiked the price target to 1,900p from 1,760p, saying it sees both an inflection point for the business and consistent momentum in the recovery data.
This is not reflected in the current share price, which remains down around 40% versus the end of 2019, JPM said.
“We believe WHSmith is fundamentally a higher-quality business compared to pre Covid-19 for three reasons: (1) Better category opportunities, with the rollout of the ‘one stop Travel shop’ format. (2) Better space growth opportunities, with the acquisitions of InMotion/MRG providing both a US rollout story and further expansion into Europe/Asia. (3) Better business mix, with a higher % of group profits coming from Travel.”
The bank said that while it recognises concerns around a consumer slowdown, it believes WHSmith’s low average transaction values, focus on essential categories, and little competition in many locations provide protection against those pressures.
JPM lifted its FY22/23/24 pre-tax profit forecasts by 3%/1%/1%, and said it now sits around 12% above Bloomberg consensus for FY23.
At 0945 BST, the shares were up 3% at 1,549.50p.
