I have watched with dismay and bemusement as my holding in WH Smith (SMWH), a key member of my portfolio, has seen its shares slide from £23.47 on New Year’s Eve to £17 at the end of last week.
As I have said before in this column, Smith has been one of the few success stories among High Street retailers, mainly because it has gradually and systematically scaled back in town centres and concentrated on its growing travel outlets.
This week, however, the shares shot up towards £20 again as Smith moved into the United States with the takeover of InMotion, which sells digital accessories such as headphones in American airports, for £155 million. I wish I could share the enthusiasm.
On the plus side, it gives Smith a foothold in the world’s biggest consumer market and the price is quite modest by international deal standards. It will add to revenue and profits in Smith’s rapidly growing international division.
Even so, I am mindful of the fact that sellers tend to do far better out of acquisitions than buyers, even when the deal is friendly. What is more, the history of UK retailers expanding into the US is littered with disappointment.
Let us hope that my concerns are misplaced and that the acquisition is a route to riches for Smith. The rise in the share price is at least justified, not by this deal but by the performance of the existing operations. There’s a decent if unspectacular yield, a reasonable price/earnings ratio and a rising, well-covered dividend. I’m happy to continue holding despite, not because of, this acquisition.
Has Luke Johnson Done Investors a Favour?
The press has been full of cake-related puns but the collapse of Patisserie Holdings (CAKE) is no joke for investors who thought the shares were worth more than 400p but who now find they are worth about 50p – or will be when the suspension on trading them is lifted. Patisserie almost joined the 90% club, where shares have lost nine tenths of their value, in less than a month and may yet do so if small shareholders grab what they can get for their shares as soon as they can.
One of the attractions of Patisserie was that executive chairman Luke Johnson had a sizeable stake, and thus a personal interest in the company. The downside was that Johnson was overstretched as director of too many companies yet he still thought he could be chairman and chief executive at the same time. Splitting the two top roles is no guarantee of success. It does, though, offer an extra safeguard.
Shareholders at the meeting called to approve an emergency share issue were grumpy that they were denied the opportunity to participate in a rights issue. Johnson may have done them a favour. At least they were prevented from throwing good money after bad. As the story of what went wrong gradually emerges, who knows what horrors will be revealed?
When things go badly, learn from your mistakes, get out and move on. It’s a lesson I learnt with Hornby (HRN).
Don't Panic
I don’t deny I was very worried while stock markets were crashing during October. It’s stupid to bury your head in the sand when things are going badly but as a long-term investor I decided to stick it out. In fact, I bought a small stake in Galliford Try (GFRD) as the shares started to rise again. I didn’t catch the bottom, but I don’t try to as it’s nigh on impossible to time all purchases at precisely the right moment.
It is at least a reminder that when the market falls sharply, investors should start looking for buying opportunities. All my 2018-19 ISA allowance is now invested in equities. Panic over, for now.
Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice, nor are they the opinions of Morningstar.
