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Investing.com - WH Smith (LON:SMWH) (OTC:WHTPF) has been downgraded by Barclays from Overweight to Equalweight with a significantly reduced price target of GBP6.75, down from GBP13.10.
The downgrade follows WH Smith’s revised guidance regarding its North American operations, where the company identified an overstatement of US profits of approximately £30 million. In response, Barclays has cut its FY25 profit before tax (PBT) forecasts by 24% or £36 million to £110 million, aligning with the company’s updated guidance.
Barclays now projects US EBIT margins of approximately 6%, with North America EBIT forecast at £24 million, slightly below the company’s guidance of "approximately" £25 million. This accounts for about £33 million of the total £36 million downgrade, with additional small adjustments made to Rest of World EBIT, central costs, and interest costs.
The review of WH Smith’s financial statements is currently being conducted by Deloitte. Without additional evidence, Barclays assumes North American margins will remain at approximately 6% throughout the forecast period, resulting in a 23% cut to FY26 PBT estimates to £119 million.
Barclays notes that while no formal guidance has been provided for FY26, Bloomberg consensus for PBT currently shows a mean of £134 million, with a median of £124 million and a low estimate of £118 million. The analysis excludes potential costs of the ongoing financial review, which are expected to be treated as exceptional items.
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