SMWH - WH Smith

[rockket]

any thoughts on this UK retailer?

 

they're trading ~9-10x forward PE

 

two segments: high street and travel

 

-high street is a declining business - basically a newstand that sells magazines, newspapers, books, stationary confectionaries

previous CEO did a great job in cutting costs and keeping high margins, but overall revenue trend is down. threats from amazon, groceries and also facing impact from the weakened economy.

 

-travel is a well protected, growing business - sells impulse buys at airports, railroad stations, hospitals, etc. literally captive customers with high margins.

 

it's difficult to value what seems like a declining business, but definitely can see the possibility for a compelling upside case on this one. essentially a transforming business, with its new growth segment being extremely well protected and great ROEs.

 

as you might expect, SMWH heavily shorted because people view it as a dying business. i think fears may be overblown because of the high street's target low income demographic demographic and marginal/impulse purchase product offering (less susceptible to amazon replacement). obviously a very competitive space though.

 

i'm doing valuation work on this currently but would love to get thoughts from anyone else familiar with the company/industry.

 

thanks

RK