Upgrades due at WH Smith after strong results, 'buy' says Canaccord

WH Smith's impressive annual results are likely to drive upgrades for the books-to-stationery retailer, according to Canaccord Genuity, which maintained its 'buy' recommendation and 1,225p target price for the stock on Thursday.

Headline profit before tax (PBT) for the year ended 31 August increased by 8% to £114m, ahead of the consensus forecast of £112m and Canaccord's £113m estimate.

While like-for-like sales were 3% lower over the year, this was offset by a strong 160 basis-point increase in the gross margin and further cost savings, Canaccord said.

With WH Smith lifting its cost savings guidance for the high street business and revising down its pension funding deficit expectation, the consensus PBT forecast for next year of £118m should move up to around £120m, the broker said.

Canaccord said: "We remain buyers for the strong growth prospects of Travel, now bolstered by a concerted push into international markets, and the continued strength of cash generation, which underpins a good dividend yield and further accretive share buybacks."

According to the broker's soon-to-be-upgraded forecasts, the stock trades at a 15% discount to the sector on a price-to-earnings basis. It said this discount was "unwarranted" given that WH Smith's estimated earnings and dividend growth is better than prospects at its peers.

The shares were up 2.4% at 1,019p by 11:33.