This week WH Smith (SMWH) was yet another major public company who had to announce that it could not publish accurate accounts. To quote from their announcement on Thursday: “a current financial review has identified an overstatement of around £30m of expected Headline trading profit in North America. This overstatement is largely due to the accelerated recognition of supplier income in the North America division. WHSmith now expects Headline trading profit from the North America division for the financial year ending 31 August 2025 to be approximately £25m, down from previous market expectations of approximately £55m”.
The share price promptly collapsed by over 35%.
I am not a holder of the shares but those who do are probably feeling angry. Broker Peel Hunt cut their rating on the shares to “hold” but why would anyone want to hold shares in a company where you cannot trust the accounts, or trust the management who cannot publish accurate accounts? Certainly not me.
As I said in my book “Business Perspective Investing”, financial numbers are not important when picking shares for investment because all public company accounts cannot be trusted. But trust in the competence of management is certainly one aspect to consider when buying shares.
It will no doubt take a long time to rebuild confidence in WH Smith.
P.S. The most amusing thing about this event was that Investors Chronicle published a very positive article on the company in their 22-28 August edition headlined “This streamlined retailer is going global”. Presumably they went to press just before the bad news broke.
How does one protect against such events? Don’t plunge into buying a new holding all in one go. Stagger your investment until you have established confidence in the company and its management.
Roger Lawson (Twitter: https://x.com/RogerWLawson )
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