FTSE 250 round-up: investors pile into Trustpilot and WH Smith
As Rentokil’s US struggles triggered a major sell-off, overseas success was behind a big upsurge at a mid-cap pair where share prices staged a spectacular rally.
11th September 2024 15:14
by Graeme Evans from interactive investor
The woes of Rentokil Initial were in sharp contrast to the top of the FTSE 250 index today as Trustpilot Group (LSE:TRST) and WH Smith (LSE:SMWH) reaped the benefit of their American endeavours.
The consumer reviews platform reported strong half-year growth in North America, driven by customer wins with companies including LexisNexis, Chime, Coinbase and Verizon.
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For WH Smith, its travel-focused businesses in the region showed “good momentum” over the summer as recent initiatives underpin an improvement in trading.
In a session when FTSE 100-listed Rentokil Initial (LSE:RTO) made another downgrade to North America profit guidance, Trustpilot shares rose 30.5p to 223.5p and WH Smith lifted 136p to 1363p.
The improvement came as both companies boosted the City’s earnings per share estimates by announcing plans to use some of their surplus cash on buying back shares.
Trustpilot plans to replicate a previous £20 million buyback, while WH Smith surprised analysts by announcing a move worth £50 million.
The retailer’s return of cash has been made possible by the receipt of £85 million relating to the buyout of its defined benefit pension scheme, as well as the strength of its balance sheet as debt leverage is now within its target range.
WH Smith regards North America as its most exciting opportunity for growth, with a target of building market share to 20% over the next four years.
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Its recent analysis of the North American market shows about 2,000 news and gift and specialty retail stores across the top 70 airports, of which the company has over 260.
The division, which is now its second largest behind Travel in the UK, grew sales by 4% in the fourth quarter and by 6% across the financial year to 31 August.
The performance was boosted by convenience retail in US airports, whereas broker Peel Hunt noted the picture for InMotion tech stores and in US resorts was less pleasing.
The Travel UK division grew fourth quarter sales by 9% and by 12% across the full year, having performed particularly well over the peak summer period.
Peel Hunt reiterated its Add recommendation and 1,500p price target following the update, believing that a US-led positive surprise is needed to really galvanise shares.
It said: “We still need to see underlying forecast momentum before we can get too excited, but it's a fine business with good fundamentals.”
The broker is also supportive of Trustpilot, which today reported an 18% year-on-year rise in half-year revenues to $100 million (£76.7 million) and annual recurring revenue growth of 17% to $211 million.
Adjusted earnings came in ahead of expectations at $10.6 million, up from $5.7 million the year before as operating leverage drove a 3.9 percentage point increase in margin.
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Consumer adoption of the platform continues to grow, with unique monthly users up 28% on a year earlier. For businesses, the company has added new product features to its platform that provide greater insights into consumer behaviour and market dynamics.
The growth in revenues was spread across its regions, with North America up 16% to $20.9 million and the UK 19% higher at $39.9 million. Bookings, a leading indicator of future revenue, rose 23% in North America and 19% group-wide.
Peel Hunt said this strong performance on the annual value of contracts signed or renewed could lead to an upgrade to 2025 estimates further down the line.
Even after the share buybacks, it believes that cash should continue to build and could lead to continued shareholder returns next year.
The broker has a price target of 275p, noting that the shares have been at a 40% discount to global peers. It added: “Trustpilot seems to be going against the wind: while others have suffered from a more restrained corporate spending environment, the company is flourishing.”
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