Are WH Smith shares set for a rebound? Retailer prepares payouts to investors as travel business booms

WH Smith shares received a rare boost on Wednesday after the retailer aligned shareholder payouts amid continued momentum in its lucrative travel business.

The group announced a £50m share buyback on the back of 7 per cent annual revenue growth for the year to August 31, thanks to a 12 per cent expansion in its UK travel unit that helped offset a 4 per cent fall in the high street.

Investor confidence was also boosted by an £85m boost from the purchase of WH Smith’s pension scheme and assurances that debt is returning to the company’s target levels.

Could long-suffering WH Smith investors finally be set for significant growth in the value of their shares?

WH Smith shares closed up 10.5 per cent at 1,360 pence today. They are up just under 4 per cent this year but are down 2 per cent in the past year after retreating from their recent peak above 1,700 pence in 2023.

WH Smith shares are worth about half their December 2019 peak, reflecting a tough few years for the company since the start of the Covid pandemic.

WH Smith’s bottom-line performance has been boosted by an expansion of its travel offering, which has allowed the retailer to capitalise on a captive audience at airports, bus stations and other transport hubs.

In the UK, its travel business enjoyed 9 per cent growth in its fourth quarter of peak trading, supported by its new takeaway offering, Smith’s Family Kitchen, which WH Smith says is performing above expectations.

Meanwhile, travel to the rest of the world and the United States is expected to have seen full-year revenue growth of 15 percent and 6 percent, respectively.

This has offset the continued decline of its brick-and-mortar business, which has continued to struggle despite management efforts such as the launch of Toys “R” Us “stores within stores.”

WH Smith expects to launch another 37 Toys “R” Us stores before Christmas 2024, bringing its total to 76.

John Moore, senior investment manager at RBC Brewin Dolphin, said: ‘The travel business continues to record strong growth, while high street trading performance is slowing but in line with expectations.

‘Revenue growth, profitability and the actions taken by the management team are all pointing in the right direction after a few difficult years during the pandemic and its immediate consequences.

‘With its share price less than half its pre-Covid peak, WH Smith is indeed one of the most representative examples of UK mid- and small-cap companies that remain cheap.

“But with a reasonable dividend in place, a number of self-help measures underway and a share buyback programme planned for later this year, that could change in the not-too-distant future.”

Away from the tills, WH Smith has also enjoyed an £85m boost thanks to the purchase of its defined benefit pension scheme.

This helped enable the buyback and maintain the group’s commitment to a capital allocation policy that includes returning surplus cash to shareholders.

It also said it believes the purchase has significantly reduced its leverage, in line with its strategy.

Analysts at Peel Hunt, which has a target price on WH Smith of 1,500p, said: ‘The pension credit changes gearing ratios, and WH Smith has enough confidence to buy back £50m of shares.

‘Has the story changed? Absolutely. The buyback is a pleasant surprise, but we think the stock will live and die on the expected underlying momentum.

“It’s a decent growth story with a not-so-expensive multiple, but it takes a positive surprise led by the US to really galvanise the stock.”