Rolling coverage of the latest economic and financial news
The market is not impressed with WH Smith’s latest update – shares have slumped this morning by 16%.
Richard Hunter, head of markets at the broker Interactive Investor, says things are “going from bad to worse” for the retailer.
The capital raise comes at a time which will severely test investors’ patience and loyalty to the cause. Indeed, further investment into WH Smith will require something of a leap of faith as weaker consumer confidence has affected spend per passenger, a reduction in flights in the US has impacted airline capacity, while the Middle Eastern conflict has generally disrupted any progress which the group had been making.
…If the previous ‘annus horribilis’ for the group, where an overstated profit forecast led to a sharp decline in the share price and with the CEO unfortunately falling on his sword as a result seemed uncomfortable, matters have now taken a turn in what could be an existential time for the company. The capital raise, if successful, is designed to draw a line under any legacy issues while positioning the group to be underpinned by a stronger balance sheet with the company having less of a reliance on debt to grow.
The business has a strong core and operates in attractive markets with ample scope for profit expansion, particularly in North America. However, we need much greater capital discipline and a laser focus on returns. In recent years, the outcomes from certain acquired businesses and contract obligations have been very disappointing. Our priorities are to build an efficient and effective foundation for WHSmith and use this to drive a growth strategy managed for profitability.
…There is no doubt that current economic uncertainty and its effect on consumer appetite for spending has created headwinds. In this environment, sorting legacy issues while investing in the core model requires the financial flexibility of a stronger balance sheet in lock-step with self-help. This placing is a prudent and proactive step to accelerate our transformation of what is, at heart, a good business with some great people and clear opportunity for profitable growth.
