Broker snap: Nomura impressed with cost savings at WH Smith

17th Oct 2011 13:07

Nomura has increased its target price for high street stationary and books retailer WH Smith, saying that after a solid year, buybacks, better cost savings and lower tax should drive returns.Alongside the group's full year results for the 12 months to the end of August, it identified an incremental £11m of cost savings which should result in £25m over the next three years. While Nomura lowers its like-for-like sales forecasts for the High Street division, "the additional cost savings as well as at least 100 basis points of gross margin gains, offset the impact to our operational forecasts," the broker said. Earnings per share are expected to rise by 15% to 60p as a result of share buyback (£50m announced for this year) and a lower tax rate.Nomura also said that it expects the Travel division to "move the dial in the medium term".The target is raised from 565p to 600p. The broker says a buy rating is retained, given the group's attractive valuation (trading at 9.2 times prospective earnings), strong balance sheet and cash generation.Nevertheless, by 13:07 on Monday, shares were trading down 1.91% at 538.5p.BC