WH Smiths SMWH

[TheMotorcycleBoy]

Hi folks,

I decided to take a look at WHSmith the other week, we don't currently hold any, and I'm not 100% sure whether we do anytime soon. However, despite the derelicition of the High Street of late, this firm seems to one which is ? making it's way gradually through the malaise and is carving out more openings in Airports and other travel hubs, where a "captive" / bored / tired audience frequents.

I have recently read about them attempting to make headway abroad:

https://www.investorschronicle.co.uk/ti ... -ambition/ (probably behind paywall, google "whsmith expansion usa" for similar)

and observe that whilst the High Street shops/presence seem to be getting smaller over the years, they have a growing presence in airports, motorway service stations etc.

I did some Fundamental Analysis and a few price valuations over here if anyone is interested in checking that out, came up with varying results from about £9.80 - £15.40 per share. So personally, at nearly £20/share I find them at tad pricey.

What do other LFs think?

Matt

[TheMotorcycleBoy]

DSPP added a few interesting points, from the business model and market forces side of things:

....
Then one looks at the underlying business model, and the strategic moves they are making in that. In this case treat the high street as an unloved cash cow to be run down & dumped if it does not deliver (i.e. they don't need to be a luvverly high street shop, they just need to be slightly less dreadful than the segment competition, not a difficult target) whilst building the high margin travel business.

Then one looks at M&A activity. My tea leaves aren't good on this one. Are they prey or predator. Who is in play ? Who would over or underpay.

Then one looks at cyclical & market factors. Which geographies are they exposed to. How are the economies doing in those areas. Will it affect them.

Then one makes a buy/sell decision on the shares.

It certainly does not look like a dog, but is it overpriced ? mmmmmmmmmmm.......

- dspp

[dspp]

I see them in UK airports a lot these days. I personally think that there is a limit to how much stuff can be sold in airports, and think the UK is getting pretty close to the top of that retail curve, but I could be wrong. As I go around Europe and Americas and Asia I think that airport retail is in a similar place everywhere. If so then it depends on the extent to which WHS can outperform its peers in making money from aiport punters on the one hand, whilst fending off the airport operators (landlords) depradations on the other hand (the Ferrovials of this world etc).

mmmmm.....

My personal opinion is that €400 spend on a infinite use lounge pass means that I never spend any money ever in WHS or Starbucks or etc at all in the year (and no expenses pain). But I'm going through a lot more airports than the average punter (well over a hundred a year) so it is a no-brainer for me to avoid WHS spends. So I see a lot of the typical WHS locations and can see what they are doing, but I don't know to what extent they have room to grow before butting up against better competition and/or being over-harvested by the landlords.

mmmmm......

regards, dspp

[TheMotorcycleBoy]

After spending a riveting half hour looking at the first few pages of the 2017/18 AR:

....
Then one looks at the underlying business model, and the strategic moves they are making in that.

Yup, indeed, the business is currently reported as comprising 2 independently managed divisions: "Travel" and "High Street". Both obviously driven by aggressively optimal use of space, the High Street one notably seasonal (back-to-school, Xmas etc.). Books sales still are prominent feature, with their strengths considerable dependent on current success of recent publications - e.g. the J.k.Rowlings, Dan Browns and so on.

the high street as an unloved cash cow to be run down & dumped if it does not deliver....whilst building the high margin travel business.

The growth in store openings is Travel. Currently have about 1.33x more travel units than high street. And as I think that you've alluded above the margin growth will be here too. Since most travel customers buy in these outlets, whereas in high street a significant footfall (I think) browses then walks out and on.

Then one looks at M&A activity. My tea leaves aren't good on this one. Are they prey or predator. Who is in play ? Who would over or underpay.

You foxed me on this, Dave. Who'd buy them d'ya reckon? A big Yank business retailer or a news type provider (RELX?) ??

Then one looks at cyclical & market factors. Which geographies are they exposed to. How are the economies doing in those areas. Will it affect them.

My brief reads suggest the non-Uk sites include, US, Oz, S. America, SE America, Europe. My take on it is, our world being the place it is, the travel will not be affected by virtue of the host countries poor population, since travellers are usually comparatively rich foreigners. Business traveller number will obv. be effected by possible economic downfall. (Big travel risk being global terrorism...obviously).

Then one makes a buy/sell decision on the shares.

I'm only interested in buy possibilities. They do quite pricey, but having said that they've not been below £15 since Nov 2016. The business does seem quite good however, and will *probably* grow to be geographically diverse. Perhaps I should raise (any potential) target buy price to £17.50? Or perhaps move on...

Matt

[TheMotorcycleBoy]

This is why WHS is off the radar for me.

Matt

[Bouleversee]

SMWH has been one of my best performing shares, having given me a decent income and gone up 331% since I bought at the end of January 2011. Unfortunately, they are not in an ISA and my non-ISA divs. are way over the new £1000 allowance so I should have sold them by now but they had a bit of a drop and are still not back to the 2286p high and I don't know whether to buy them back in the ISA or wait and see if they go higher and sell out completely. Goodness knows what I would then do with the money, however. I wouldn''t mind betting they continue to do as well in future as any of my other holdings, many of which are a disaster.

[TheMotorcycleBoy]

SMWH has been one of my best performing shares, having given me a decent income and gone up 331% since I bought at the end of January 2011. Unfortunately, they are not in an ISA and my non-ISA divs. are way over the new £1000 allowance so I should have sold them by now but they had a bit of a drop and are still not back to the 2286p high and I don't know whether to buy them back in the ISA or wait and see if they go higher and sell out completely. Goodness knows what I would then do with the money, however. I wouldn''t mind betting they continue to do as well in future as any of my other holdings, many of which are a disaster.

Thanks for this Bouleversee,

I do like the concept of WHS moving (and growing) their business from UK+high street to Global+travel. But the low OM and low ROCE (after trying to account for leases/rents) still put me off a little. I do assume, however, that the operating numbers will gradually improve if the business, over time, succeeds in this transformation.

I actually think that the share price will probably reattain that high you mentioned earlier - but I think that even now (at about £20 ish) they are currently quite high priced.

Matt