WH Smith faces turbulence as activist investor builds up chunky stake

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WH Smith PLC (LSE:SMWH) is facing turbulence after the investor that is pushing for a board reshuffle at Rolls-Royce Holding PLC built up a chunky stake.


Causeway Capital, which a year ago owned 5.01% of the retailer, has now become its largest shareholder with a 9.05% holding, equivalent to GBP185mln according to Friday’s closing price.


READ: WH Smith issues mixed trading update as investors digest good news/bad news combo


The investment manager, which has GBP34bn of assets in its portfolio, is famous for buying in companies that have fallen out of favour of the market in order to force change.


Just a few weeks ago it made the news in the UK after calling on Rolls-Royce’s incoming chair Anita Frew to make sure directors have the right expertise in terms of decarbonisation and engineering.


The Los Angeles-based group also invested heavily in Volkswagen six years ago after shares fell sharply on news it was cheating on carbon emissions. It has now recovered its investment and made a profit from it.


The City may be expecting a similar stance on WH Smith’s plans, even though Causeway told The Times they are “firm believers in the strategy and management team” of the newsagents and “have confidence in the long-term growth potential of the business”.


The US investor may start with the board, as the FTSE 250 is keeping Henry Staunton as chair until next year, marking ten years of tenure even though London’s rules impose a maximum of nine.


As for the business strategy, broker Peel Hunt reckons WH Smith has strong fundamentals and it’s been hit by a slow recovery in the travel sector.


Investors were disappointed earlier this month after the group predicted profits for the year ending August 2022 will be at the lower end of market expectations, with current revenues running at 71% of pre-pandemic levels.


“We continue to believe that WH Smith will come out of the crisis a bigger and relatively stronger company: market share gains are occurring already and new space is coming onstream. The news on short-term profits will hold the shares back for now,” analysts at Peel Hunt said.


London reacted well to Causeway’s involvement in WH Smith, with shares rising 3% to 1,560p on Monday afternoon.

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