RBC has cooled on WH Smith PLC (LSE:SMWH), downgrading to 'Sector Perform' and trimming price target to 650p, with analysts arguing the travel retailer now looks "fairly valued" as pressure builds on its UK and Rest of World businesses.
The Canadian bank's analysts also cut FY26 and FY27 profit forecasts by 3-4%, leaving its new FY26 underlying pre-tax profit estimate at £98.5mln, just below the bottom end of WH Smith’s £100mln to £115mln guidance range.
Analysts point to a tougher backdrop for passenger numbers, especially in the UK, where it anticipates consumers potentially coming under pressure from a weaker employment outlook and higher air fares, while airlines could also trim schedules as fuel costs rise.
WH Smith has already had to navigate disruption from temporary closures at Heathrow Terminals 3 to 5, the bank noted, although those stores are due to reopen this month ahead of the peak trading season.
RBC also flagged a small drag from new regulations on promotions for higher-fat foods, which it thinks has hit WH Smith’s Rail arm more than other parts of the estate.
In the Middle East, where the group has 48 stores, closures are expected to have only a relatively immaterial direct impact on profitability, though wider route disruption remains a risk.
RBC, meanwhile, said the Travel Essentials segment should continue to perform well, helped by new store openings and higher spend per passenger, while management is also reviewing the InMotion estate and exiting non-core resort fashion stores in Las Vegas.
Even so, the broker said extra cash returns are “some way off”, with leverage still elevated and WH Smith likely to prioritise strengthening its balance sheet. It added that the company will need to rebuild credibility with investors and deliver a strongly second-half weighted year to hit targets that already look demanding.