Broker snap: WH Smith to outperform peers

4th Mar 2011 10:32

The defensive nature of WH Smith's business should play well in 2011, with its reliance on small ticket items seeing the company less likely to be hit by any slowdown in consumer spending, according to UBS.The broker expects the newsagent to perform well relative to the retail sector over the next 12 months and cites four key reasons: low average ticket price; less gross margin pressure; potential benefit from bookseller Waterstone's shutting further stores; and recovery in air passenger numbers (helping sales at its airport stores)."We believe its core categories [of] confectionery and stationery [will] grow broadly in-line with GDP and although the physical book market remains in structural decline, WH Smith may benefit from the reduction in competition on the High Street," the broker says.UBS upgrades the stock to a 'buy', from 'neutral', but reduces forecasts as trading conditions appear to be weak across the retail sector. The target price is lowered from 535p to 525p.