- Creates travel-focused retailer
- Sale to accelerate growth, enhance margins
- WHSmith brand retained
WH Smith (SMWH) has agreed to sell its UK High Street business to private equity outfit Modella Capital for £76 million in a move that marks an end of an era for the British retailer, which opened its first shop in London way back in 1792.
The transaction completes WH Smith’s transformation into a pure-play travel retailer with attractive global growth prospects.
Crucially, the sale does not include the WHSmith brand, which will remain exclusively associated with the travel retail business.
This is a potential reason why the deal was priced below expectations and WH Smith’s shares dipped 3.5% to £10.53 on the news.
While the High Street arm is profitable and cash-generative, it has become less relevant to the group as a whole over the last decade.
By removing exposure to the UK High Street, the sale will improve WH Smith’s margins and accelerate growth in profit and earnings per share.
BETTER THAN NOTHING
Ahead of the deal with Modella, there was speculation the High Street store chain could fetch £100 million for the company.
While a £76 million enterprise value is disappointing, something is better than nothing for the FTSE 250 retailer.
WH Smith’s 480 High Street stores, which employ around 5,000 staff, will transition to new ownership under retail turnaround specialist and Hobbycraft owner Modella.
The stores will operate under the WHSmith brand for a short transitional period before rebranding as TGJones.
Over time, WH Smith has increased its focus on its cash-generative, faster-growing Travel division, with 75% of the group’s revenue and 85% of its trading profit coming from the Travel business in the last financial year.
The Travel division is well-positioned for growth with passenger numbers forecast to grow in air travel by 2.5 times between 2024 and 2050, driven by both population and economic growth, and investment in airport infrastructure is increasing across the globe creating more opportunities for airport retailing.
A PIVOTAL MOMENT
‘As we continue to deliver on our strategic ambition to become the leading global travel retailer, this is a pivotal moment for WH Smith as we become a business exclusively focused on travel,’ said CEO Carl Cowling.
‘High Street is a good business; it is profitable and cash generative with an experienced and high-performing management team. However, given our rapid international growth, now is the right time for a new owner to take the High Street business forward and for the WH Smith leadership team to focus exclusively on our Travel business.’
NAME THAT MEANS NOTHING
Russ Mould, investment director at AJ Bell, said the deal frees up WH Smith’s management to focus on the stronger part of the group.
‘No longer will they have to run to stand still and keep the UK stores washing their face. Instead, it’s all about growing the travel estate where the prospects are much stronger,’ he explained.
Mould noted that the sites will be rebranded TGJones, ‘a name that currently means nothing to shoppers. Modella faces the risk of being lost in the crowd on the high street, surrounded by vape shops and discount retailers, none of which command shopper loyalty.
‘The WH Smith brand was the key reason why its stores managed to stay alive in a crumbling high street environment. Shoppers knew they could depend on the retailer for certain items and they kept coming back for more. Take the brand away and there is a major risk that footfall to these stores plummets under the TGJones name.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Martin Gamble) own shares in AJ Bell.
