WH Smith PLC – Well-Positioned from Long-term Perspective

WH Smith PLC (LON: SMWH) is engaged in high street retail and travel businesses. The high Street business sells a variety of products which are differentiated into some categories: Books, Stationery, and few entertainment products in some stores.

On 22^nd October 2020, the Company will release its Preliminary Results.

Financial Highlights H1 FY2020 - Good first-half performance, with Strong Profit Growth in Travel

(Source: Interim Results, Company Website)

On 14^th May 2020, the Company announced the interim results for the six months ended 29th February 2020, with good performance, substantial mitigating actions implemented following the Covid-19 outbreak and well-positioned for the recovery from COVID-19 disruption. In the first half of 2020, the group revenue increased by 7% to £747 millionas compared with the corresponding period of the last (2019: £695 million), with Group LFL revenue fell 1%. Travel trading profit increased by 11% to £49 million(IAS 17) against the last year same period (2019: £44 million). For the first half of 2020, the high Street trading profit stood at £44 million, headline profit before tax was at £80 million and statutory profit before tax was stated at £63 million. In the UK, most of the stores at railway stations and airports have been temporarily closed. SMWH has continued to serve NHS staff from approximately 130 stores located in hospitals across the UK. The online businesses have performed sturdily, particularly in books (seen an increase of 400% in sales in April 2020). In April 2020, Group’s total revenue decreased by 85% as compared with the corresponding period of the last year. Similarly, revenue for High Street was down by 74% and Travel was down by 91%, compared to the same period last year.  

Share Price Performance

Daily Chart as at May-14-20, before the market closed (Source: Refinitiv, Thomson Reuters)

WH Smith PLC’s shares were trading at GBX 865 before the market close (at 1:20 PM GMT+1) on 14th May 2020 and were down by 5.62 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 2,660.00/GBX 584.04.

Valuation Methodology

*Peers: JD Sports Fashion Plc, Dunelm Group Plc, Pets at Home Group Plc, and Card factory Plc.

Valuation Metrics

(Source: LSE)

As on 30^th April 2020, the Price/Earnings multiple of the WH Smith PLC was 13.6x, and the same multiple was lower as compared with the General Retailers Services industry of 22.9x, reflecting that the company is trading at a lower multiple as compared to its peers.

Growth Catalysts
The fundamentals of the Group are intact, and the business prospects of the company remain strong. The Company is focusing on cost control and increasing gross margin gains. In international travel, WH Smith is still operating as a small player with good growth potential. Significant potential to accelerate growth outside of US using InMotion format .

Conclusion
The Company has made good progress in the first half of the fiscal year 2020.There was a slight impact of Coronavirus on the first half of 2020 results; however, inexorably the performance in H2 FY20 is likely to be different. Since March, SMWH has seen a substantial impact on financial performance, with most of the stores closed around the world. In the critical time, the Group has supported many good causes and kept more than 300 stores open to serve the communities (including the NHS and the communities that rely on the Post Office services). The Company had recently completed the acquisition with MRG (Marshall Retail Group) and has been performing well. In the upcoming summer, the business is planning to start a new pharmacy format at Heathrow Terminal 2. WH Smith was fast to react to the COVID-19 disruption and issued new equity through a placing of approximately £162 million on 6 April 2020 as well as secured an additional bank funding of £120 million. Looking ahead, the Company is well-positioned for the long term and continue to grow the share in the international travel retail market.

Based on the decent fundamental prospects and support from valuation done using the above method, we have given a “BUY” recommendation at the current price of GBX 852.50 (as on 14^th May 2020, before the market close at 11:13 AM GMT+1) with lower double-digit upside potential based on 1.67x NTM EV/Sales (approx.) on FY20E sales (approx.).

N Brown Group PLC - Ambition to Deliver Profitability, Digital Growth While Generating Sustainable Free Cash Flow

N Brown Group Plc (LON: BWNG) is a Manchester, United Kingdom-headquartered digital fashion retailer.

Update (as on 23^rd March 2020) – Representing Actions Taken to Mitigate Impact of Covid-19

The Group is focused on ensuring the safety of its employees and customers. The first two weeks trading in the financial year 2020 remained in line with forecasts, and in last week the group faced a decline in demand from customers. The daily product sales declined by over 40% as compared to the expected values. The Group’s financing facilities stood at GBP 652.5 million, which include securitisation facility, revolving credit facility and an overdraft. BWNG anticipates its adjusted profit before tax to be lower than the earlier guided range in FY2020.

Share Price Performance
 
Daily Chart as at May-14-20, before the market closed (Source: Refinitiv, Thomson Reuters)

N Brown Group PLC’s shares were trading at GBX 17.8012 before the market close (at 2:09 PM GMT+1) on 14th May 2020 and were down by 5.51 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 163.90/GBX 10.02.

Valuation Methodology

*Peers: Superdry Plc, ASOS Plc, Marks and Spencer Group Plc, and Kingfisher Plc.

BWNG’s Strength
The Company plans to build on its strengths and looks to revitalise its mobile business and give customers a smooth experience. The online market, where the Group has a strong foundation, offers a big profitable growth opportunity for the company.

Conclusion
The Company operates in a competitive industry, and excessive competition could impact the profitability of the company.  The group continue to monitor the impact of COVID-19 and will take decisions to safeguard the interest of shareholders. In the last few months, the Group is going through changes in higher management and changes in directors which could be the beginning of new strategies and initiatives. In the latest trading update, N Brown Group Plc has witnessed a revenue growth in its digital segment. The Group is making good progress with its ongoing strategic review, which would benefit in the cost reduction and thus, improve the business further.

Based on the decent growth prospects and the valuation done using the above method, we have given a “Speculative Buy” recommendation at the current price of GBX 17.50 (as on 14th May 2020, before the market close at 2:00 PM GMT+1) with lower double-digit upside potential based on 0.64x NTM EV/Sales (approx.) on FY20E sales (approx.).
 
*All forecasted figures and Peer information have been taken from Refinitiv (Thomson Reuters).

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