W.H. Smith shares plummet in London following a profit warning and a capital raise

(Il Sole 24 Ore Radiocor) - WH Smith plummets on the London Stock Exchange (FTSE 100 ) and hits a 16-year low, following a second consecutive profit warning and the announcement of a capital increase to cope with the impact of the war in Iran. Specifically, the company – which sells books, travel accessories, confectionery and other items at airports and railway stations – has revised its pre-tax profit forecast for the financial year ending 31 August downwards for the second time in a few months. The estimate has fallen from a range of £90-105 million to £75-90 million, due to the uncertainty arising from the conflict in the Middle East. In fact, because of the war, airlines have raised flight prices and cut routes due to lower demand, whilst consumers, concerned about inflation, are severely limiting their travel spending.

The company’s results have also been weighed down by weakness in North America, with consumer confidence deteriorating. Like-for-like sales in its Air division in the region fell by 2% over the last seven weeks, and sales in the UK division are also slowing. Despite this, the British stationery and book chain reported that in the 14 weeks to 6 June, turnover rose by 5% on a constant currency basis and by 2% on a like-for-like basis. In the seven weeks to 6 June, however, the like-for-like increase was 1%. However, analysts and investors are not convinced by the capital increase, which involves the issue of up to 26 million new ordinary shares (equivalent to 20% of the share capital) via a share placement. The final number of shares to be placed and the price will be announced once the book-building phase has closed, it said. Based on the company’s closing price yesterday of 492.2 pence, this would raise approximately £128 million (US$171.2 million).

“WH Smith’s supposed strengths have been swept away, whilst the company’s situation is only getting worse,” writes Richard Hunter of Interactive Investor in a note. Furthermore, “the capital raise comes at a time that will put a severe strain on investors’ patience and loyalty to the cause”. For the expert, further investment in WH Smith will require a “leap of faith”, as “the decline in consumer confidence is weighing on per capita spending by passengers, the reduction in the number of flights to the US has affected airline capacity, and the conflict in the Middle East has slowed the group’s overall progress”. Analysts at RBC Capital Markets agree. “WH Smith must regain the market’s confidence.” Following a third quarter that fell short of expectations, “it will need to be more selective in opening company-owned stores internationally” to make up ground.