Numis downgrades WH Smith after recent re-rating

11th Apr 2014 10:26

Numis Securities has downgraded its rating on stationery and books retailer WH Smith from 'add' to 'hold', saying that it sees a 'misty horizon' despite the company's broadly in-line first-half report.Pre-tax profit in the first half rose 3% to £69m, while earnings per share (EPS) and the dividend both increased 15%. Like-for-like sales were as expected, with High Street down 6% and Travel down 1%, though margins improved as costs were tightly controlled."Interim results were solid as usual and we still expect WH Smith to deliver double-digit EPS growth for the next 18 months, based on its established strategy," said analysts Matthew Taylor and Andrew Wade. "Visibility beyond that is perhaps less clear-cut and, given the significant (and deserved) re-rating of the stock in recent months, we move from 'add' to 'hold'," they said.The share price has doubled since January 2013 and the stock's valuation has closed the gap to a 15% discount to the peer group, which Numis believes is "somewhat overbought".The broker has left its target price for the stock unchanged at 1,225p.The stock was down 2.8% at 1,094.02p by 10:34 on Friday.BC