On Monday, Goldman Sachs reiterated its Buy rating on WH Smith (SMWH:LN) (OTC: WHTPF), with a price target set at GBP15.40. The firm's positive stance on the retailer is attributed to its robust returns within the concessions sector, which is believed to be driven by several key factors.
The analyst highlighted WH Smith's leaner cost structure as a primary reason for its best-in-class profitability. This is mainly due to the retailer's lower labor intensity and rents, which contribute to higher asset turnover when compared to its peers in the concessions industry.
Additionally, WH Smith is recognized for its strong performance following the COVID-19 pandemic. The company has seen a sustained double-digit increase in average transaction value (ATV), improvements in category mix, and advancements in store formats. These achievements are further bolstered by the acquisition of new contracts, particularly in North America.
WH Smith's market presence in North America, which currently stands at approximately 13%, is seen as a starting point with significant room for growth. Goldman Sachs notes the potential for WH Smith to secure additional contracts and expand its market share in the region.
The firm's Buy rating is underpinned by the combination of WH Smith's competitive edge in profitability, its post-pandemic recovery, and the opportunities for further expansion in North America. The GBP15.40 price target reflects Goldman Sachs' confidence in the retailer's continued success and growth potential.
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