WH Smith PLC (LON:SMWH) shares fell to a year’s low after analysts warned about the impact of coronavirus on its travel outlets.
With the Covid-19 outbreak at pandemic levels and expected to persist for some time, the number of air miles being flown is expected to be hit hard.
READ: WH Smith's travel revenue jumps as new acquisitions kick in
As WM Smith’s main growth engine is its Travel business, which operates shops in airports and railways stations, analysts at Peel Hunt said they were “taking pre-emptive action” on forecasts, though admitting this was “very much finger in air… but it feels right to try to be cautious”.
“Unless something very positive happens quickly, it now seems unlikely that the non-US travel business will average +3% LFL over the next 12 months: we shift that assumption to -5%.”
However, as the FTSE 250-company has low operational gearing, with turnover-based rents and “good labour control”, this only brings about a circa 7% downgrade to the next two years.
As 2022 is “barely affected”, the analysts said the coronavirus situation “will not have a long-term impact on WH Smith” and therefore see the share price weakness as “a great opportunity” as they trade for 13 times 2022 forecast earnings – “that spells value to us”.
Peel Hunt's 3,000p price target remained unchanged.
Future of the high street
What’s more, JP Morgan Cazenove highlighted WH Smith as one of the winners in a note entitled about “the rebirth of the high street”.
Observing that town centres now account for just 35% of all UK retail sales, down from around 50% at the turn of the millennium, the JPM analysts argued against the common perception that the high street is beyond redemption, which is still being perpetuated by images of boarded-up shops and shuttered bank branches.
Seeing signs that the high street is “beginning a process of redefinition and recovery”, stimulated by government investment in infrastructure and with empty space being filled by residential developments that often appeal to a younger demographic, the analysts see future high streets serving the needs of an urban population from convenience food stores, food-to-go, gyms, small-format cinemas, pubs and flexible workspaces.
WH Smith is “a key way to play the medium to long-term recovery dynamic”.
But, markets were focused on the short-term and WH Smith shares were sent 4% lower to 1,776p on Friday morning, their lowest level since December 2018.