WH Smith optimistic despite profits fall

WH SMITH yesterday reported a fall in first-half profits but cushioned the blow with upbeat comments about prospects for the core high street brand and its fledgling Internet service.

However, the results were overshadowed by the announcement that Open, the interactive digital television service, has signed up six new content providers including Smith's, which will start selling books via the new medium in September. Smith's will later expand its product offering on digital television to include various "educational products".

Smiths has been selling books and CDs through its own site on the Internet for some time and this week launched WH Smith Online, a new free Internet service provider to rival Dixons' Freeserve.

This so-called "Internet factor" has put a rocket under the company's shares, which have soared by 50 per cent since the start of the year. All this has made valuing Smith's difficult.

SG Securities reckons the online business could be worth around pounds 200m, or 80p per share of the current share price, down 25p at 731.5p yesterday. The company could build up significant revenues, say pounds 20m a year, from product sales and banner advertising on the sites, pushing the value still higher.

The unknown in all this is how much cannibalisation there will be from the online sales on Smith's stores. Books and CDs are among the most popular items bought on the Internet although Smith's may find it can target a new, younger audience via its interactive media while still catering for its more traditional customer base through its stores.

While Smith's surfs the Internet learning curve it is also making gradual progress with its core business. Although group profits fell from pounds 128m to pounds 105m in the half year, trading profits at the core Smith's high street business improved by 10 per cent to pounds 73m.

Margins edged up by one percentage point and book sales increased by 5 per cent. This is the first time in around 20 years that the group has increased market share in this key sector.

The average spend is still too low and the integration of the John Menzies stores has been slower than expected. It is also important for the group to stabilise the news distribution business where profits were hit last year due to the loss of a big contract. Looking forward there is till lots of room for improvement in both margins and average customer spend.

Culturally Smith's may seem an odd company to be adopting such a pro- active Internet strategy but it is right to be swimming with the sharks given how vulnerable its core business could be to Internet sales erosion.

On SG Securities full-year forecast of pounds 135m the shares trade on a forward multiple of 19. Given the stratospheric rating of Dixons at the moment that does not look expensive.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Financial Adviser

£20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...

SThree: Graduate Recruitment Resourcer

£20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

Guru Careers: Application Support Analyst / 1st Line Support

£25 - 30k: Guru Careers: We are seeking an Application Support Analyst / 1st L...

Guru Careers: .NET Developer / Web Developer

£45K - £55K (DOE) + Benefits: Guru Careers: We are seeking a full stack .NET D...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence