Market Report: WH Smith's direction of travel uncertain


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The Independent Online

Kate Swann has been credited with the turnaround of WH Smith so her departure in July could be bad news for the share price of the stationer. Not so, claim analysts at Cantor Fitzgerald.

Cantor thinks the "recent share price performance shows the market is starting to look through the departure … of Swann, who will be replaced by Steve Clark."

Mr Clark is a nine-year veteran of the retailer, and Cantor thinks the group has a "sustainable long-term double-digit earnings per share growth story" with its travel business in stations and airports which is supported by a "pedestrian high street cash cow."

Cantor rates the shares a buy ahead of the half-year results next week, and raised its price target to 900p.

The group has already experienced a staggering share price rise since Ms Swann began her turnaround in 2004. The shares are up nearly 300 per cent since then. But Goldman Sachs scribblers think the growth story is over, and yesterday they downgraded it to sell. They slashed their target price to 680p because of the retailer's "high exposure to relatively low-growth product categories" and the "lack of scope for reinvestment of excess cash".

For now the City is in agreement with Goldman: yesterday WH Smith declined 27.5p to 736.5p.

It was a bleak day on the benchmark index again. Traders were unimpressed that Bank of England policymakers decided against further stimulus. Improved UK services purchasing managers' index data helped to stem an early sell-off, but the FTSE 100 then tumbled 76.16 to 6,344.12 as eurozone concerns re-emerged. The 1.19 per cent drop was worse than the previous day, which had been the biggest one-day drop since the end of February.

Despite the wider sell-off, mining stocks were in favour. One of the best performers on the blue-chip index was the Kazakh miner ENRC, up 10.6p to 235.2p. Traders decided that the spike was brought about by bargain-hunting. The miner has fallen 28 per cent in less than a month, so some decided it could be worth buying even with the knowledge of writedowns and governance concerns.

Staying on oil, mid-cap listed Heritage Oil took fright after an update in a court case on a $434m (£288m) tax dispute between the Ugandan government and the oil explorer. Heritage has been in arbitration with the Ugandan government over whether it should pay capital gains tax on its sale of Ugandan oil licences to Tullow Oil in 2010. According to Ugandan officials, the court case – held in London on Wednesday – found in the country's favour, and Heritage's shares declined 12.6p to 165p on the news.

The arbitration comes after a similar case in Uganda which Heritage lost.

Ali Ssekatawa, assistant commissioner for litigation at the Uganda Revenue Authority, told Reuters: "On the core question of the taxability of Heritage's transaction with Tullow, the tribunal in London ruled yesterday that that had already been settled by the tax appeals tribunal here in Uganda, and it was satisfied with that ruling."

But the arbitration case is yet to rule on whether a clause in a contract existed to ensure Heritage would not be liable for the capital gains tax.

A statement from Heritage said: "The international arbitration will now continue and move to deal with the merits phase of Heritage's contractual claims against the Ugandan government and the underlying substantive Ugandan tax matters remain under appeal in the Ugandan courts."

Heritage's investors will have to sit and wait for a further update.

The case of tax trouble in far-flung countries is an example of the risks of investing in new frontiers.

Tullow is unlikely to be affected by the outcome. It paid $313m to Uganda on Heritage's behalf when it bought the licences. But it has its own $473m capital gains tax dispute with Uganda over the subsequent divestment of assets to Cnooc and Total. Tullow drifted 37p lower to 1,177p.

It wouldn't feel right if the market didn't have room for a bit of takeover tattle-tales. Yesterday some retail investors were using bulletin boards to talk up the Aim tiddler Chariot Oil & Gas. One spurious suggestion was that Bob Dudley's oil giant BP could be taking a look, while others suggest that a rival explorer may have struck lucky close to Chariot's field off Namibia. BP is already a partner of Chariot on a farm-in agreement. Yesterday the gossip accompanied Chariot's share price rise of 7.5p to 25p.


Domino's Pizza

Peel Hunt has raised Domino's from a "hold", and it is easy to see why. The nation's favourite pizza deliverer has wowed hungry Britons by stuffing its crusts with sausage, and yesterday posted first-quarter numbers which "after a relatively lacklustre first few weeks", show a "solid start". Shares at 607p are a buying opportunity up to 628p, it adds.



Dump shares in Mothercare, Cantor Fitzgerald advises. The children's products retailer is publishing fourth-quarter numbers next week, and the broker expects "to see little progress in the UK turnaround". It adds that competition is fierce and gives a target of 200p for shares presently 303.25p.



"Boring is good", Investec says as it implores us to hang on to shares in Wincanton. The broker says the support services business "delivered a clean trading update" yesterday, and though it is concerned about debt, it feels that "a gradually improving trading position must help in this respect". The shares are 54p; the target price is under review.