LONDON (ShareCast) - (Sharecast News) - JP Morgan increased its price target for WH Smith but cut its rating to 'neutral' after the shares strong performance so far in 2021.
WH Smith's travel business remains valuable and has "vast roll-out potential" worldwide despite its recent troubles during the Covid-19 pandemic, JP Morgan said. The stationer and bookseller's high street business also includes online brands such as the Funky Pigeon online greetings card business.

JP Morgan downgraded WH Smith shares from 'overweight' and increased its price target by 11% to £17.93. The broker cut its adjusted pretax profit forecast for 2021 by 6% and its 2022 estimate by 14%.

WH Smith's travel business has been hit hard by the near shutdown of air and rail travel during the pandemic. This was initially made worse by the company's $400m cash purchase of US travel retailer Marshall in late 2020 though WH Smith said North America was its best-performing travel market early in 2021.

Travel is a "unique business" with long-term growth prospects and high returns and is insulated from online competition, JP Morgan said. WH Smith's US acquisitions have given it a foothold in a market that should recovery more quickly than others because 85% of US air travel is domestic, it added.

Online brands such as Funky Pigeon arguably make up most of the high street business's valuation, JP Morgan said. High street profits have been stable aided by a decade of margin improvement. Further cost cuts may be harder but online growth and £22m of rent savings should offset reduced post-pandemic footfall.

"WH Smith has a high-quality travel estate with long-term growth tailwinds combined with fast-growing online brands within high street. However, we downgrade to neutral given the recovery in the share price (up c21% YTD)," JP Morgan analyst Samuel Bland wrote in a note to clients. "The shares accurately reflect current events, given the near-term uncertainty around a return for international travel and ongoing cash burn in the interim."

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