WH Smith (SMWH) has launched an ambitious takeover that roughly doubles the size of its international travel business. The UK retailer announced a transformational £312m acquisition of Marshall Retail, a fast growing US travel retailer with stores in airports, resorts and tourist locations (mainly in Las Vegas) for $400m (£312m).
The exciting deal is being funded by debt and a £155m share placing.
Combined with existing businesses, including InMotion, the tech accessories airport retailer acquired last year, Marshall will boost WH Smith’s growth potential in the growing $3.2bn US airport travel retail market.
The deal, announced alongside better than expected full year results, saw WH Smith shares surge to near the top of the FTSE All-Share leader board on Thursday, rallying roughly 6% to £22.12.
HANDING OVER THE LEADERSHIP BATON
The figures and Marshall's acquisition is a great way for chief executive Stephen Clarke to sign-off after a successful six-year stint in the hot seat. He will officially hand over to Carl Cowling at the end of the month.
The full year results, to 31 August 2019, showed a £10m (7%) hike in pre-tax profit to £155m on group revenue up 11% to almost £1.4bn. There was also another healthy dividend hike, up 8% for the 12 months to 58.2p per share.
This is impressive given the wider retail sector beset by doom and gloom and investors will be further lifted by news of a ‘good start to the new financial year’ from the books, magazines and snacks seller.
INTO THE BIG LEAGUE
Already well-known to the WH Smith management team, Marshall sells news, gifts and convenience products and its main growth driver is the rapidly expanding airport travel retail business, which benefits from selling to customers who are ‘captive’.
With 170 stores in North America, Marshall is on course to generate around $204m of sales and earnings before interest, taxation, depreciation and amortisation (EBITDA) of circa $31.5m in 2019.
Peel Hunt is clearly sold on the deal. The broker thundered that Marshall ‘completely galvanises the travel side of WH Smith, making it a major player in the States and now one of the serious names in global travel retail’.
Furthermore, the broker enthused that: ‘WH Smith wants to operate on a global platform and we think its travel skillsets make it likely to succeed. The shares are a must for growth investors as WH Smith enters a new era.’
CLARKE SIGNS OFF IN STYLE
As Shares has previously explained, WH Smith’s strategic focus on growing its travel business has resulted in over a decade of strong and consistent profit growth from the division, which now speaks for two thirds of trading profit and generated heady 22% sales growth in the year to August.
WH Smith, Muscat Airport in Oman
READ MORE ABOUT WH SMITH HERE
‘Internationally we have won a record number of units in the year, including significant wins in the Middle East, Australia and Europe and, more recently, our first WH Smith win in a major US airport,’ explained Clarke. ‘We now have 433 units open internationally, across 30 countries and over 100 airports.
‘In our high street business, we have delivered another good performance. We continue to focus on improving our stationery offer and this remains our key area of investment. As a result, we delivered a strong “Back to School” period with good growth across many product categories.’
CASH MACHINE
Copious cash generation is one of the key bull points for WH Smith, which continues to pay out handsome dividends and use surplus cash to buy back shares.
Including the proposed 41p per share final dividend, the FTSE 250 constituent will have returned £1bn of cash to shareholders since 2007, increased the dividend every year and reduced its share count by 41%.
