Christmas cheer came early today for retailer WH Smith PLC (LON:SMWH) as analysts at Deutsche Bank returned its rating on the stock to ‘buy’ from ‘hold’
The analysts pointed out that WH Smith had been on Deutsche Bank’s Buy list for over 8 years before they downgraded their recommendation at the beginning of 2016.
They believe that there is now “ less macro risk than most UK retailers” with WH Smith shares “well supported by free cashflow” and trading on a discount to the market .
The analysts said: “We think the Travel division platform is well established overseas and offers many years of growth.
“The High Street also has opportunities to grow profits because cost guidance looks conservative whilst Post Office and Local offer potential for expansion.”
Deutsche Bank said the main downside risks are a downturn in passenger travel or that High Street cost and gross margin opportunities are insufficient to offset weakness in the printed news categories.
WH Smith shares on the FTSE 250 index were up 1.3%, or 19p at 1,466p in mid-morning trading.
Christmas 2016 appears more orderly ...
Deutsche Bank also noted that WH Smith joins B&M European Value Retail SA (LON:BME) and Dixons Carphone PLC (LON:DC.) among its top non-food retail picks in a European review.
On the sector, Deutsche Bank said: “ Christmas 2016 appears more orderly than last year. Black Friday was well executed and clothing retailers participated less in promotions as inventory levels are tighter and weather patterns have been more normal.”
However, it added: “Conditions remain tough in most segments and we expect Christmas like for like sales to be broadly flat year on year.
“Retailers are unlikely to be able to shed much light on what looks to be an uncertain 2017, with slower demand growth and price inflation likely the dominating themes.”