Shares in resilient and copiously cash-generative newspapers, books and stationery seller WH Smith (SMWH) have risen 48% since June amid inclement High Street conditions. Yet given structural threats and the imminent departure of well-regarded chief executive officer (CEO) Kate Swann, investors now face the decision whether to sell into the price strength or stick with the business.


Swann is leaving in June after nigh-on a decade in charge of the robust-performer, prompting some analysts to question whether she getting out at the right time. Steve Clarke, managing director of the High Street business, takes over the reins from 1 July and has big shoes to fill given his predecessor's record of shareholder value delivery.


In a note following the FTSE 250 firm's Christmas trading update (23 Jan), Seymour Pierce (now Cantor Fitzgerald) analyst Kate Calvert noted the market is still debating whether Swann is 'leaving at the top'. Nevertheless, she describes Steve Clarke as 'a safe pair of hands' who has been 'very much involved in the strategic direction of the business.'


For the 20 weeks to 20 January, WH Smith claims to have achieved a good profit performance across the group despite negative like-for-like sales in both the Travel division, where WH Smith is expanding in the UK and internationally, and the High Street arm. Gross margins in both divisions were up as management prioritised profitability over sales and pushed on with cutting costs.


Calvert believes 'there is still plenty of growth to go for, particularly in Travel and Internationally, and the High Street business market position is probably strengthening given recent high profile administrations as there become fewer places to shop on the High Street.'


Having partially side-stepped the effects of the digital entertainment revolution – the FTSE 250 firm now stocks only a small range of entertainment products in some stores – WH Smith has to contend with migration to e-books. In a research note published today (22 Feb), investment bank Espirito Santo says that 'given the experience with Entertainment (managed from c. 20% of sales in FY04 to c.2% now), we think that this is a management team that has a plan in place to deal with any faster-than-expected decline in fiction sales.'


With a 'buy' rating and 720p price target, the bank flags up WH Smith's relentless focus on mining data on a store by store basis, as well as watching the competition and reacting to threats fast, as having 'been key to WH Smith's survival and growth while other retailers have floundered.' It adds: 'We accept that many investors feel that they have to suspend their disbelief in order to invest in WH Smith given the structural pressures it faces, but there is nothing mystical in what WH Smith is doing.'


Shares in the general retailer put on another penny in early dealings today at 701p, nudging its market value up to £911 million, not far from the £1 billion mark. Next news-flow is the half-year results slated for 11 April.

Issue Date: 22 Feb 2013