WH Smith PLC knocked down to ‘neutral’ by JP Morgan as return to

() was knocked down to ‘neutral’ from ‘overweight’ by JP Morgan because of uncertainty around the return to international travel and the ongoing cash burn in the interim.

Travel remains under pressure amid widespread restrictions, but analysts said the newsagent has a high-quality travel estate with long-term growth tailwinds.

READ: WH Smith trims monthly cash burn forecasts after performance tops expectations

“Travel retail is a unique business; it cannot be disrupted by Online, benefits from product exclusivity, and generates higher returns,” they commented.

“The UK is well saturated, but we estimate WHSmith has a 6% global share of the airport news, books, convenience channel and vast rollout potential. We expect the International margin (8% in 2019) to converge towards the higher-margin UK over time.”

North American operations were boosted by the acquisitions of InMotion and MRG, providing a 7% share of the speciality airport market in 2019, and stores in 28 of the top 30 busiest airports.

JP Morgan noted that 85% of North American air travel is domestic and so it should recover faster.

The price target was bumped up by 11% to 1,793p after analysts included the potential for online business sales for the first time.

The online arms, including Funky Pigeon, account for most of the High Street division’s valuation, the US investment bank said.

Funky Pigeon accounted for around 5% of High Street sales in 2019 and is the second most important retailer in the UK online greetings card market.

High Street profits have been stable and helped by margin improvement in the past decade, with analysts expecting further online growth and £22mln of rent savings over the medium term, which should offset lower footfall post-pandemic.

With a cash position of £200mln in February, the bank sees low risk given the £12-17mln monthly cash burn on a 50% group sales decline compared to 2019.

Shares dipped 1% to 1,780p on Wednesday late morning.