Broker tips: Softcat, WH Smith, B&M

(Sharecast News) - Citi downgraded Softcat to 'neutral' from 'buy' on Monday and lifted the price target to 1,950p from 1,550p as it argued that "even the best house in the neighbourhood has a price". The bank said Softcat has continued to demonstrate disciplined execution and has benefitted from the structural pick-up in enterprise IT investments.

"Looking ahead, the group is well positioned to sustain superior growth through clients' accelerated investment in the infrastructure layer towards being AI ready," it said. However, following the re-rating since the first-half results - the shares are up more than 50% since mid-March - Citi sees the positive view reflected in the stock valuation.

"With higher base comp as well as possible headwinds from macro and supply constraints, we see limited scope of meaningful growth surprise and further stock re-rating," it said.

Analysts at Berenberg cut their price target for retailer WH Smith from 574p to 420p on Monday after the group's third‑quarter update triggered a second guidance downgrade and an equity raise to shore up the balance sheet.

Berenberg said the bulk of its downgrade stemmed from a sharper‑than‑expected slowdown in the WH Smith's North America division, where its InMotion and Resorts units continued to underperform. Like‑for‑like sales at InMotion swung from 3% growth to a 5% decline, while Resorts weakened from ‑8% to ‑11%, despite passenger numbers and Las Vegas visitor data showing marginal growth. Rival SSP reported 3% like‑for‑like growth in North America over a similar period, suggesting the weakness was specific to WH Smith.

The German bank, which reiterated its 'hold' rating on the group, said softer demand had forced heavier promotional activity, pressuring margins and prompting a £12m cut to its North America underlying earnings forecast - which drove a 15% reduction to group pre-tax profit guidance, now expected at £75m to £90m.

To prevent leverage rising above 2.5x, WH Smith raised £106m through a placing of around 26m shares at a 17% discount - the proceeds of which will reduce borrowings and help accelerate its North American restructuring programme.

Berenberg also noted that WH Smith's shares trade on roughly 11x blended FY26-27 earnings - broadly in line with peer SSP, which has maintained guidance and has been returning cash to shareholders - leaving the risk‑reward "fairly balanced".

Shore Capital downgraded B&M European Value Retail on Monday to 'hold' from 'buy' as it pointed to limited near-term visibility, a slower start to FY27 and a strong share price recovery.

The broker said it believes B&M is taking sensible steps to address the core issues in its UK business, with the Back-to-Basics strategy beginning to improve availability, sharpen price positioning and simplify the range. Meanwhile, France remains a meaningful source of growth and cash generation continues to provide important support.

"However, with UK like-for-like sales only just stabilising, margin recovery still needing to be proven and near-term trading visibility limited, we think the recent share price recovery leaves the risk/reward more balanced than before," it said.

Shore Capital maintained its 215p price target on the stock.