It is now 225 years since Henry Walton Smith and his wife, Anna, opened a small news vendor in Little Grosvenor Street, London. By some reckoning WH Smith should not have made it so far. In 2003, when Kate Swann took over as chief executive, it seemed to be heading down the road travelled by other non-specialist retailers such as Woolworths and BHS.
Ms Swann chose to run the high-street branches for cash, expand the travel side and return what cash remained to investors. Fourteen years later, she has left but the policy remains in place. Since 2007 £829 million has been returned as dividends and share buybacks.
Interim figures show like-for-like sales at the high street stores down by 3 per cent in the first half to the end of February but an improvement of 1 percentage point in margins as cost savings come through: the rise could have been higher, some analysts believe, but for the tailing-off in sales of those colouring books for adults that were plainly a licence to print money.
This season’s big sellers are spoof humour books such as Five On Brexit Island. The stores are doing well out of an emphasis on seasonal stationery and are even trialling the sale of electronic goods such as Apple accessories.
In travel, the UK side is doing remarkably well. Like-for-likes were up by 6 per cent at airports, helped by higher passenger numbers, and even the rail outlets showed some growth. The real gains over the next few years will be international.
WH Smith is opening 50-odd more stores each year including the biggest ever win, ten outlets at Changi airport in Singapore that will start to trade from the next financial year. International raised halfway profits by £1 million to £4 million.
The half-year dividend is up by 9 per cent to 14.6p and the company is halfway through the current buyback programme of £50 million for this financial year.
WH Smith is in the enviable position of merely having to continue with the current strategy to make progress further. The share price reflects this, up 18 per cent this year before it fell 37p to £17.88 yesterday on some understandable profit-taking and selling on 17 times earnings. Investors might be tempted to do the same but the shares should have further to go.
My advice Buy
Why Shares have come up a long way and investors could take some profits, but the WH Smith model would seem to offer more benefits to come
Hunting
Hunting is as well placed as any business in the oil services industry can be, having lost about half the workforce since the end of 2014, cut capital spending, suspended the dividend and virtually wiped out debt through a £71 million placing in November.
Now the company has said it swung back into a slight profit in the first quarter of this year after four quarters of losses in 2016. Earnings before interest and other one-offs came in at $5.5 million, against a loss of $10.9 million last time. This year’s bottom line will be flat because those earnings will be wiped out by depreciation, but the trend will continue upwards, even if it is difficult at this stage to forecast firm numbers.
Hunting is being helped by an upsurge in the US shale market, centred around Texas, the home of its main manufacturing. Last week the Baker Hughes count of oil rigs rose for the 12th week in a row, while the firmness of the oil price suggests this will continue. The company receives about 30 per cent of revenues from US shale, mainly through its perforating systems business.
Offshore oil in the US and elsewhere remains depressed but has probably bottomed out. Hunting’s share price has been remarkable because the market has not been slow in recognising the actions taken. The shares have risen from about 250p at the start of 2016 and added another 22½p to 609½p yesterday. The recovery seems in the price and long-term holders might consider taking some money off the table.
My advice Take profits
Why Much of the future good news seems to be in the price
Dunelm
It is not often that a retailer, or any other business for that matter, describes its chosen market as being “in decline”. Dunelm, though, says this is the case for homewares — the linen, kitchen goods and other products it sells through its relatively low-cost stores.
The company is growing and gaining market share because it is relatively under-exposed to the southeast and can open new stores there. The third-quarter trading update, though, shows like-for-like sales off by 2.2 per cent.
About two thirds of this should be clawed back in the fourth quarter as the late Easter break arrives and the online business is growing strongly, up by 21 per cent. Dunelm also has the advantage of having snapped up Worldstores, the struggling retailer that owns the Kiddicare brand, last autumn for a small amount. A new warehouse has just opened.
Nonetheless, it accepts that the market remains “volatile”, and yesterday’s figures on wage increases only emphasise the pending squeeze on consumer spending.
The shares have been weak since the start of the year and, off another 20p at 602½p, sell on 14 times earnings. Best avoided for now.
My advice Avoid
Why Consumer spending on non-essentials looks set to fall
And finally . . .
A rare event in the market yesterday: a cash-raising by a mining company. Pan African Resources raised $51 million through a placing at a 12.5 per cent discount to its market price to fund its Elikhulu tailings project in South Africa. This is expected to produce its first gold at the end of 2018, at a rate of about 56,000 ounces a year. The placing was four times oversubscribed, which would suggest that there is financial backing out there for projects where the numbers appear to stack up.
