WH Smith Group (LSE: SMWH) has been a high street and train station fixture for years, selling a familiar assortment of books, stationery, magazines, newspapers, confectionery, gifts and toys. Yet from an investment point of view, the excitement lies elsewhere.
This stock is flying
The group’s growing global travel retail business has driven the WH Smith share price higher and higher. It is up almost 20% in the last six months, and by 87% over five years.
The FTSE 250 stock has dipped slightly today, down 2.76% at time of writing, following publication of its trading update for the 20-week period to 18 January, but this might even be a buying opportunity.
While total revenue rose a healthy 7%, like-for-like sales fell 1%. The high street operation was the culprit, with revenue down 5% over the period. Management is responding by identifying £3m of additional cost savings, bringing total cost savings for the year to £12m.
In sharp contrast, travel business revenues jumped 19%, boosted by its Marshall Retail Group acquisition, and further significant contract wins in the US. Its UK travel business also did well, “with strong sales per passenger driven by our initiatives and ongoing investment.”
A growing global operation
WH Smith completed the acquisition of “leading and fast growing US travel retailer” MRG, ahead of plan on 20 December and is pursuing further growth opportunities in the US and beyond. It has recently won a tender at Berlin Brandenburg Airport to open three units, while lining up a flagship pharmacy at Heathrow Terminal 2 for the summer.
The £2.4bn group looks a little pricey, trading at 21.4 times earnings, but you pay a premium for success. Recent steady earnings growth looks set to continue, with a forecast 5% this year and 9% in 2021. So now could be a good time to hop on board this expanding global business.
I like this FTSE 250 stock even more
Here’s another FTSE 250 stock that’s really flying, defence-focused engineering contractor Babcock International Group (LSE: BAB). It’s moved into recovery mode after a rough five years when the share price collapsed more than a third, from 1143p to 428p, which has left it looking like a real bargain.
I examined the Babcock share price in November and concluded it was too cheap to ignore, even though it was under a shorting attack from a mysterious group called Boatman Capital Research at the time.
I labelled it a high-yield bargain that you should buy before its share price recovers sharply. Consequently, it’s up 13% since then, helped by subsequent news it had won a £1bn contract to design and build the weapons handling system for Australia’s new Attack class submarines.
The £3.1bn group still looks dirt cheap, trading at just 8.6 times forward earnings, with a generous forecast yield of 4.4%, covered 2.6 times. Earnings are forecast to drop 15% this year, but start growing steadily thereafter. I said buy it in November, and I still reckon it’s a buy today.
Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended WH Smith. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.