Market Report: International hopes help WH Smith to advance
Wednesday 29 June 2011
It may be a British institution, but WH Smith was being praised for its potential beyond these shores last night as the high-street stalwart charged up the mid-tier index.
The retailer, traditionally known for selling stationery and books, jumped forwards 14p to 487.8p after Citigroup reiterated its "buy" recommendation and said the company was "evolving". Increasing WH Smith's target price to 650p from 600p, the broker claimed its international business – which started in 2008 with five stores in Copenhagen – was "an area of growth we do not believe is fully understood yet by the market."
"We believe WH Smith can open 300 international... units over five years," estimated Citi, which predicted that by 2016, the business "will be a material contributor to group operating profit." The company's earnings from stores in travel locations, such as airports, has doubled over the past five years, and the broker said it believed "exporting this best-in-class... business to international markets will be an important driver of profitability."
They also described fears over the retailer's high-street operations as "overplayed", claiming that even in the case of "a collapse in the physical book market, we believe WH Smith can maintain profitability".
As global markets braced themselves for today's vote in Greece on proposed austerity measures, the FTSE 100 closed higher for the third-consecutive session, moving 44.54 points to 5,766.88. Despite saying traders were "not getting too far ahead of themselves", City Index's Giles Watts did concede optimism was "growing that with the wolves at Greece's gates, Europe is uniting at the right time".
Royal Bank of Scotland ended up as the blue-chip index's top performer after shooting forwards 1.46p to 36.55p, while Lloyds Banking Group – up by 0.77p to 44.17p – and Barclays – up by 4.4p to 241.95p – were also in the blue. Meanwhile, Standard Chartered gained 41p to 1,581p following its announcement it was set to post a record profit for the first six months of the year.
A number of well-worn bid tales were doing the rounds again, including the rumour that Ferrexpo could be in line for an approach from BHP Billiton, which advanced by 29.5p to 2,342.5p. With vague speculation suggesting a possible price of between 650p and 700p a share, the Ukrainian iron-ore producer put on 17.7p to close at 457.6p on the FTSE 250.
There was also the renewal of vague chitter-chatter that Man Group could attract a possible bid. Previous speculation has linked it with the Bank of New York Mellon and JP Morgan, and yesterday the world's biggest listed hedge-fund manager added 5.2p to finish at 232.8p on the blue-chip index.
SAB Miller rose 18p to 2,176.5p after Investec suggested its recent approach for Fosters could flush out a bid for the Grolsch brewer from Anheuser-Busch InBev (ABI). The broker said the possible scenario was one reason why investors should not be downbeat on SAB's bid for Fosters, adding as well that "there might be more opportunity in [the Australian group] than the market is thinking".
The oft-discussed possibility of Smiths Group being broken up was in focus again thanks to comments by the engineer's chief executive, Philip Bowman. Speaking to investors in New York, Mr Bowman said the group would "undertake more active management of our portfolio through a combination of acquisitions... and disposals", bumping Smiths up by 42p to 1,149p.
Northumbrian Water edged forwards by 3.2p to 416.7p after jumping nearly 8 per cent on Monday following the news that Cheung Kong Infrastructure Holdings (CKIH) could make a bid. Evolution Securities warned, however, that CKIH's ownership of Cambridge Water meant any deal was likely to be referred to the Competition Commission, which the broker said would demand "customer price reductions, that will very likely remove any synergy benefits.". Takeover hopes continued to help Northumbrian's peers in the water sector, and Severn Trent, which had its rating changed to "add" from "neutral" by Evolution, climbed by 33p to 1,448p while United Utilities was 5p higher at 592.5p.
Micro Focus continued to rise after the potential of its continuing talks resulting in a bid was talked up earlier in the week by Matrix, moving 8.8p to 341.9p despite a rival broker playing down the upside.
Although Canaccord Genuity's Bob Liao did not rule an offer being made, the analyst said the software group's "downgraded growth outlook may lead to bids not far from current share-price levels", which could therefore result in "rejection of offers and the termination of bid talks".
Among the small-cap groups, 888 was lifted by 3p to 33.5p, a jump of nearly 10 per cent, as bid rumours were revived once again around the online-gambling group. Not for the first time, the vague speculation – played down by traders – linked it to a possible approach from Playtech, which edged up 0.75p to 329p on the Alternative Investment Market.
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