WH Smith
Revenue £1.18bn Dividends 39.4p
It is an odd sort of retailer that can celebrate flat like-for-like sales as the best result in 13 years. WH Smith is an odd sort of retailer.
Under the former chief executive, Kate Swann, the company evolved a strategy of running its distinctive high street stores as efficiently as possible. New openings were shunned, and as leases expired, the decision was taken whether to renew or close. WH Smith would no longer try to compete on items such as CDs and DVDs that could be found more cheaply elsewhere.
The high cashflow would be used to expand the travel side, outlets at stations, airports and hospitals generally, and any outstanding sums would be returned to investors. The strategy has worked well. I tipped the shares in January; they are up by a fifth since then, including a 73p rise to £16.14 yesterday.
The numbers for the year to the end of August show no change in that approach. That flat like-for-like sales figure reflects a 4 per cent rise in travel revenue and a 3 per cent fall on the high street. Cashflow was £109 million, while capital spending rose by £7 million to £39 million. The cost savings at the high street stores are continuing, with £20 million expected over the next three years after £11 million last year. Expect that forecast to be exceeded.
There is a renewal of the £50 million share buyback that has run, at one level of another, since 2010. Total dividends are up 13 per cent to 39.4p. Since 2007, WH Smith has returned £722 million, or not too far short of half the current market capitalisation.
Analysts were getting excited about the first details of the international travel operation, which has 163 outlets open, with sales of £100 million and profits of £10 million looking achievable in a couple of years. That operation is not yet seeing the margins enjoyed at the UK travel business, but this can only improve.
Meanwhile, margins continued to rise on the high street, while the second-half performance was boosted by, and I can hardly manage to write this, adult colouring books.
You get what you see at WH Smith. The shares yield a middling 2.7 per cent, but the buybacks will continue to boost earnings. They sell on 17 times’ earnings, but I would keep them on the buy list long term.
My advice Buy long term
Why Strategy is clear enough, to maximise cashflow from high street and build travel, and further buybacks will support share price
Man Group
Negative investment move $2.7bn
The third quarter of this year has seen mixed results from fund managers — mixed, as in some have seen reductions in funds under management and others have seen large reductions. Jupiter, as I wrote at the time, did tolerably well. Ashmore Group, which specialises in emerging markets, yesterday reported a 13 per cent fall.
Somewhere between these sits Man Group. Clients, on balance, continued to put money into its three main vehicles, a rise of $1.4 billion after redemptions, or withdrawals, are netted out. Falling markets reduced the value of those three vehicles by $2.7 billion.
Man’s argument, since it bought Numeric in 2014, is that it is highly diversified. In the third quarter, its long-only vehicles, Numeric and GLG, which cannot trade in and out of markets day by day, lost out. AHL, which is mainly exposed to alternative strategies and can take advantage of market movements, did better.
Forecasting earnings for the rest of the year is a mug’s game. The shares, up 7¾p at 159, are selling on about nine times earnings, which is not dear for the sector, though a yield of 4.4 per cent is not generous. They look up with events, then.
My advice Avoid for now
Why After mixed quarter the news looks in the price
Unilever
Third-quarter sales growth 5.7%
Unilever stunned the market in September 2013 when it became the first global consumer group to highlight a downturn in emerging markets. Some were wondering if the third-quarter figures, which showed impressive gains in sales and volumes in such markets, up 8.4 per cent and 4.8 per cent respectively, might mark some eventual recovery.
Probably not. There were some one-off factors at play here, while growth in developed markets was more humdrum. Paul Polman, the chief executive, made it clear that the company could not expect any help from an improving global economy. Indeed, in some areas things were getting worse, with further depreciation in local currencies putting more pressure on consumer spending.
Those one-offs were the non-repetition of some destocking in China and higher sales in Latin America before possible price rises. Both those factors will disappear in the fourth quarter, which will therefore be more subdued.
With no help from the markets, then, the company will have to revert to its stated strategy to gain growth. Unilever is trying to move upmarket — four high-range personal care businesses were bought earlier in the year — while bringing in innovations in its existing products.
This is slow work, even if the company is gaining market share. The shares, up 100p at £28.90, have recovered sharply from weakness in the summer. On 22 times earnings, and with a dividend yield of about 3 per cent, there does not seem a lot to go for in the price.
My advice Avoid for now
Why In flat markets that earnings multiple looks full
And finally . . .
NCC should be doing well enough given its involvement in cybersecurity. Figures for the first four months of the financial year were strongly ahead. The company has just bought a smaller quoted competitor, but even on an underlying basis revenues were up by 17 per cent. After some delays, NCC now has its own domain services business, which provides security for companies’ websites. I have been tipping the shares for several years, and they have now risen by more than 30 per cent since the spring.
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