The Week Ahead (27-31 Jan): SMWH, CCC

The last week has been packed with a number of significant and memorable events that have kept investors, political watchers, and the general public on their toes.

After the political spectacle of Donald Trump’s second inauguration, financial markets continued their upward momentum. The S&P 500 reached new all-time highs, reflecting continued optimism and a strong economic outlook in the wake of corporate earnings reports and policy expectations (with Trump actively advocating for the Fed to lower interest rates).

The FTSE 100 also achieved a new milestone, marking a fresh all-time high. The FTSE 250 (perhaps a better barometer of the health of domestic companies), will hopefully get a kick to the upside soon.

In this week’s company news, the FTSE managed to string together two consecutive days without a profit warning (a worryingly rare occurrence that was noticed by Graham). These were a few of the announcements that piqued my interest:

easyJet numbers disappoint

I was surprised by the negative market reaction to easyJet’s Q1 trading update on Wednesday, with shares falling 5% after the forecast for underlying unit revenue to be modestly lower in Q2. easyJet confirmed it remains on track to meet its medium-term target of £1bn pre-tax profit and reiterated its FY expectations of around £709m in PBT. At the current market capitalisation, this implies a forward P/E ratio of less than 5.5. Roland covered the update in more detail here.

Brokers had mixed reactions: UBS maintained a buy rating with a slight target price reduction to 845p from 855p, while Bernstein lowered its price target to 600p from 625p, maintaining a market-perform rating.

Given easyJet's net cash position on its balance sheet, the lack of share buybacks may have disappointed the market, especially as British Airways owner IAG has been more active in this regard. Investor sentiment is definitely in favour of IAG, with its share price more than doubling over the past year.

Next week’s volatility could continue with Ryanair’s earnings report on Monday. Michael O'Leary’s comments often have a notable impact on the entire budget airline sector. Just one to watch out for either way!

Apple trails the Mag7

Warren Buffett’s genius has once again come into focus as Apple's performance has significantly diverged from the other “Magnificent 7” stocks. Buffett’s timing of reducing his stake in Apple looks impeccable as the shares have dropped nearly 8.5% since the start of the year (losing nearly $500bn in market cap at one point). The situation looks even worse when you consider Apple’s relative strength of -14.5% vs the S&P 500 over the past month.

Megan recently covered Warren Buffet's decision to reduce its stake in Apple during a webinar last Wednesday, which you can watch here (skip to 26:50 if you’re specifically interested in the Apple discussion).

For those interested in further smart money insights from director transactions, to analyst recommendations and fund manager moves, I highly recommend checking out the webinar. Megan delves into some excellent case studies to showcase our findings, including On The Beach, Rolls-Royce, and JD Sports. Make sure to stay tuned for more Smart Money insights in the coming weeks, we'd be happy to hear any questions you'd like answered in the comments as well!

The Week Ahead

Economic Calendar

Companies Reporting

While financial results from the “Magnificent 7” will undoubtedly grab the headlines next week, closer to home, there may be some intriguing developments to unpack.

Two that I will be looking at in detail are WH Smith (LON:SMWH) and Computacenter (LON:CCC)

WH Smith

Strong fourth quarter trading (for the financial year to August), alongside the announcement of a £50m share buyback programme and the receipt of £85m from a pension scheme buyout with no further liabilities provided WH Smith investors just the news they wanted to hear last September.

The company’s share price jumped 10.5% on the day of its trading update and enjoyed continued momentum in the weeks after, up to a peak of £15. A welcome relief for those who have held onto the shares since the pandemic. However, this rise was short-lived. From the end of September, the shares began a gradual decline, ultimately retreating to £11.50 today and marking a near 25% drop.

The decline is likely a reflection of the broader economic problems in the UK, which have grown sharper since the budget last year. High inflation, interest rates and national insurance contributions are all especially worrying for WH Smith, especially given its high debt levels (which Megan covered after the annual results last year). While the travel retail business has been thriving, concerns about the company’s ability to continue expanding while it manages its debt in a high interest-rate environment are growing.

But there is an argument to be made that the downward revision in the company’s valuation presents a unique opportunity at a time when interest rates are widely expected to fall.

At the heart of WH Smith’s success is its travel division, which continues to thrive as global passenger numbers rebound. According to analysis by the International Air Transport Association (IATA), 2024 marked the first year passenger levels surpassed pre-pandemic figures, with modest annual growth expected over the medium term.

Source: WH Smith Annual Report 2024

On the domestic front, chancellor Rachel Reeves is reportedly preparing to back significant expansion plans at Heathrow, Gatwick and Luton, including a near doubling of Luton’s capacity in particular. Such developments could result in a substantial increase in foot traffic, greatly benefitting WH Smith.

There are also more opportunities for growth in North America, where WH Smith currently operates 260 stores across the region’s top 70 airports. Last year, the company opened 40 stores in the region and has a robust pipeline of 60 new stores set to open, including recent wins in major airports such as Dallas, Denver, and Washington Dulles.

Source: WH Smith Annual Report 2024

It will be interesting to assess Wednesday’s trading update to see if any green shoots are starting to emerge. If WH Smith can maintain tight cost controls and take more aggressive steps toward reducing its debt, the company could be well-positioned for sustained growth in the coming years, especially as interest rates come down and people continue to prioritise their getaways abroad.

Computacenter

One of the few large technology companies still listed on the UK markets, Computacenter didn’t share the same fortunes as its US-listed counterparts last year, seeing its share price plummet by nearly a quarter in value.

After 10 years of impressive operational progress and meaningful revenue and earnings expansion, the FTSE-250 listed company grappled with moderating growth in its core markets.

Computacenter, which operates across the UK, Europe, and North America, is a leading independent technology and services provider. The company specialises in IT infrastructure, offering a combination of Technology Sourcing (hardware and software procurement) and Services (including Professional and Managed Services).

The company’s core value lies in delivering efficient IT solutions to large organisations (clients include the likes of Credit Suisse, Santander and the NHS). While Computacenter operates in a relatively low-margin industry, it has consistently generated impressive returns on capital employed, as can be seen from the chart below.

However, throughout 2024, Computacenter released several updates reflecting a more challenging operating environment. The year began with the company noting weaker-than-expected hardware demand in the UK, coupled with delays in fulfilling large orders in North America. This contributed to a 28.4% decline in adjusted profit before tax for the first half of 2024.

In its Q3 trading update, Computacenter highlighted that the performance during the third quarter was broadly in line with the prior year. But weaker corporate spending in the second half meant the company was forced to revise its full year guidance down, indicating that adjusted PBT would likely be modestly behind 2023.

In spite of the difficulties endured in 2024, the company has a very impressive track record of delivering shareholder returns, backed by its robust balance sheet and disciplined cash flow management.

The ongoing £200m share buyback program, coupled with a reliable 3.56% forward dividend yield (which hasn’t been cut for 20 years), underscores management's confidence in the business's long-term prospects. Roland wrote an excellent section on Computacenter’s dividend characteristics in an article last September, which you can read here.

Nearly £300m of net cash on the balance sheet and an undemanding forward price-to-earnings ratio of 11.3 and price-to-free cash flow ratio of just 8.4 might also just be enough to capture the attention of value investors now.

Computacenter also continues to broaden its customer base and expand in North America. The company’s product order backlog actually grew quite substantially in 2024. At the end of June, it was up 18.5% year on year. The security of future revenues will help soothe investor’s nerves.

On another positive note, whilst the first half of 2024 was full of director selling, the trend has reversed, and director buys have been taking place. Over £250,000 worth of shares were bought in September.



In the trading update on Tuesday, investors will certainly be looking to see if the company has turned a corner. Margin and growth stabilisation will be essential. However, given the share price decline over the past year, a lot of the bad news may already be baked in. Hopefully, for shareholders, an in-line trading statement and a more optimistic outlook may be enough to see some temporary relief on the day.

Disclosure: Keelan holds a long position in EZJ at the time of writing.