JPMorgan lifts WH Smith price target after 'strong' update

JPMorgan Cazenove lifted its price target for WH Smith to 1,700p from 1,520p following the company’s “strong” pre-close update on Thursday, in which it said it expects full-year results to be slightly ahead of current expectations.

With the current consensus for full-year pre-tax profit at £119m, JPM raised its forecast by £1m to £120m. It said this was driven by the travel division.

It also upped its pre-tax profit forecast for 2016, to £125m from £124m and lifted its earnings per share estimate for next year to 90.66p from 89.76p.

JPM said the stock trades on 16.8x 2016 price-to-earnings, which is a 10% premium to the UK general retail sector average of 15.3x. However, it said WH Smith’s consistently strong growth supports this premium rating.

The bank raised its like-for-like sales growth forecast for the High Street business to -4% from -4.5%, but kept its full-year 2015 EBIT estimate unchanged at £59m, saying books remain an inherently lower-than-average gross margin category.

At 1238 BST, WH Smith shares were up 0.1% at 1,550p.