Are WH Smith shares able to bounce again as journey enterprise booms?

WH Smith shares were handed a rare boost on Wednesday after the retailer lined-up shareholder payouts amid continued momentum in its lucrative travel business.

The group announced a £50million share buyback on the back of annual revenue growth of 7 per cent for the year to 31 August, thanks to 12 per cent expansion in its UK travel unit helping to offset a 4 per cent high street decline.

Investor confidence was also lifted by a £85million boost from a buyout of WH Smith’s pension scheme and assurances that debt is returning to the firm’s target levels.

Could long-suffering WH Smith investors finally be set for significant growth in the value of their shares?

Different pies: WH Smith has been boosted by its travel arm as its high street unit declines 

WH Smith shares closed up 10.5 per cent at 1,360p today. They climbed just under 4 per cent this year but are down 2 per cent over the past year having slid back from their recent high above 1,700p in 2023.

WH Smith shares are worth around half their December 2019 peak, reflecting a tough few years for the firm since the onset of the Covid pandemic.

WH Smith’s bottom-line performance has been driven by an expansion of its travel offering, which has seen the retailer cash-in on a captive audience in airports, bus stations and other transport hubs.

In the UK, its travel business enjoyed 9 per cent growth in its peak-trading fourth quarter. This was supported by its new food-to-go offer – Smith’s Family Kitchen – which WH Smith said is performing ahead of expectations.

Meanwhile, rest of world and US travel are expected to have seen full-year revenue growth of 15 and 6 per cent, respectively.

This has made up for an ongoing decline in its high street business, which has continued to struggle despite management efforts such as the launch of Toys “R” Us ‘shop-in-shops’.

WH Smith expects to launch a further 37 Toys “R” Us shop-in-shops ahead of Christmas 2024, taking its total to 76.

John Moore, senior investment manager at RBC Brewin Dolphin, said: ‘The travel business continues to book strong growth, while the high street operation’s performance is declining, but in line with expectations.

‘Revenue growth, profitability, and the steps taken by the management team are all pointing in the right direction after a tricky few years during the pandemic and its immediate aftermath.

‘With the share price less than half of its pre-Covid peak, WH Smith is, in effect, one of the poster children for mid and small cap UK companies remaining cheap.

‘But, with a reasonable dividend in place, a number of self-help measures underway, and a share buyback programme pencilled in for later this year, that could change in the not-too-distant future.’

Big falls: WH Smith shares are now worth roughly half their December 2019 peak 

Away from the tills, WH Smith has also enjoyed an £85million boost from the buyout of its defined benefit pension scheme.

This helped enable the buyback and maintain the group’s commitment to a capital allocation policy that includes returning surplus cash to shareholders.

It also said it estimates that the buyout has significantly reduced its leverage, in-line with its strategy. 

Analysts at Peel Hunt, which has a WH Smith target price of 1,500p, said: ‘The pension credit changes the gearing ratios, and WH Smith is sufficiently confident to buy back £50million of shares.

‘Has the story changed? Undoubtedly. The buyback is a pleasant surprise, but we think the shares will live and die on underlying forecast momentum.

‘It is a decent growth story on a not-expensive multiple, but a US-led positive surprise is needed to really galvanise the shares.’