1 sneaky UK growth stock to consider in July
Growth stocks come in all shares and sizes. You’ve obviously got the likes of Nvidia, with its eye-popping growth rates, or Rolls-Royce, which has positively transformed its profit margins. Then there’s WH Smith (LSE: SMWH), which is a UK stock that may raise a few eyebrows when associated with growth.
After all, many people might still associate the company with its high street stores, the first of which opened in London in 1792. But, sadly, there isn’t much growth happening today on British high streets. E-commerce and high taxes are doing the irreversible damage there.
In March, WH Smith announced it would sell its 480 high street shops to Modella Capital for £52m in gross cash proceeds. However, it announced today (30 June) that it now expects up to £40m. This will be made up of £10m expected in FY25, up to £20m in FY26, and £10m of deferred tax assets to be realised later.
In other words, it’s accepting £12m less to get the deal done, after a recent period of softer trading forced Modella to renegotiate the original deal.
In response, the WH Smith share price dropped as much as 5% today, before clawing back some losses. It’s now trading 2.5% lower at 1,100p.
Here’s why I think this FTSE 250 stock is worth considering at this price.
International travel growth story
This transaction now positions WH Smith, which is keeping its brand, as a travel retailer. As the company puts it, “This creates a pure play global travel retailer which is well positioned to capture the substantial global growth opportunities in its key markets and drive enhanced shareholder value“.
Unlike the falling footfall and unappealing economics of the high street, global travel is a structural growth market. Over the next couple of decades, global airport passenger numbers are expected to double, and that will need a lot of investment in airport infrastructure.
WH Smith already operates around 1,300 stores in airports, train stations, and hospitals across 32 countries worldwide. While growth at UK travel hubs is likely to remain limited due to opposition on environmental grounds, the Asia-Pacific and Middle East regions are expected to lead the charge.
Share price weakness
I like this pivot, as the challenges WH Smith faced on the high street aren’t nearly as strong in travel retail.
At airports and train stations, there’s a captive audience with time to kill and far fewer alternatives. No one’s browsing Amazon for a bottle of water or the neck pillow they forgot to pack!
Back in FY19, WH Smith reported revenue of £1.4bn and a £106m net profit. Then the pandemic hit the business like a sledgehammer, resulting in losses and higher debt.
For FY26, which starts in September, revenue is expected to be £1.74bn, with a net profit of £114m. Yet the share price is still more than 50% lower than before Covid, despite the firm bouncing back strongly. Indeed, it’s gone nowhere for five years now!
Looking ahead, the company expects headline net debt to increase to £425m by August, above previous expectations for £400m. So the balance sheet is a risk worth watching.
However, the stock looks cheap enough to consider, in my opinion. It’s trading for less than 13 times forward earnings, while offering a 3% dividend yield.
The post 1 sneaky UK growth stock to consider in July appeared first on The Motley Fool UK.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Ben McPoland has positions in Nvidia and Rolls-Royce Plc. The Motley Fool UK has recommended Amazon, Nvidia, Rolls-Royce Plc, and WH Smith. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
