Among the consumer-facing businesses affected by the pandemic, few have been as challenged as WH Smith (SMWH).

For years, the bastion of the UK high street had pursued a successful strategy built on one thing: travel. By securing sites in train stations and airports across the globe, WH Smith has been able to target a captive audience, allowing it to charge top dollar for consumer electronics, newspapers and magazines, snacks and confectionery.

The travel arm was clearly the growth arm for the business while the high street operation was effectively run for cash with a focus on efficiency and keeping costs low.

Covid-19 restrictions meant that the captive audience which WH Smith relied upon virtually disappeared overnight as transport hubs became ghostly versions of their former selves. Sites in hospitals remained the one area of resilience in this side of the business.

Importantly, alongside a predictably dire set of first half results (28 Apr) WH Smith announced new funding to help get it through the next phase of the pandemic and to support the rollout of 100 new travel stores over the next three years.

A new £250 million lending facility and £327 million bond offer is significant with Peel Hunt analysts Jonathan Pritchard and John Stevenson noting it provides the liquidity required to expand, even if it will dilute earnings in the short-term as these bonds covert into shares.

The pace of recovery on the travel side is hard to predict with any certainty, and a return to pre-Covid levels may be a long way off, but there are at least a couple of factors in WH Smith’s favour.

One is that it is well used to battening down the hatches and keeping a tight rein on cash from years of managing a high street operation in structural decline. Peel Hunt notes cash burn only totalled £7 million a month in the latest lockdown.

The other is the weakness of rivals and the decision of some companies to exit the travel retail space including Dixons Carphone (DC.). This could see WH Smith gain a greater share even if the size of the overall market is shrinking.

Near-term the company looks set to remain loss-making but if we look ahead to Peel Hunt’s earnings forecast for the August 2023 financial year then the shares trade at a price-to-earnings ratio of 18.2 at the current price of £18.17.

Added to the mix, the recent stock market listing of Moonpig (MOON) shines a light on WH Smith’s ownership of rival online greetings card retailer Funky Pigeon which Peel Hunt values at £300 million.

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