High-street newsagent and bookseller WH Smith (LSE: SMWH) has spent years defying the sceptics. Many analysts struggle to understand why it hasn’t become yet another high-profile British retail casualty.
They point to the company’s inability to generate higher sales as a key weakness, particularly at a time when many of the items it sells are also sold online, or in supermarkets.
Yet, the business remains in rude health, as shown by last week’s trading statement. It continues to generate lots of free cash flow, mainly due to its ability to sell stuff to captive customers in airports and railway stations.
It also seems to be able to keep squeezing out more profits by cutting out low margin sales and selling more products with fatter margins.
WH Smith’s ability to keep growing its profits and dividends in recent years, despite the challenges it faces, has seen its shares do rather well. Its success may remain a mystery to some, but the market no longer seems concerned that the good days will end soon.
However, the shares now trade on 15 times forward earnings and yield 3% – that’s fine, but hardly appetising. Profits may grow for a while yet, but that looks priced in now.