More on Boots
Boots trading statement
The best performing business within Boots remains Boots Healthcare International which increased sales 6.8% at constant currency after adjusting for the effect of the sale of some brands. Boots plans to sell this business (which will leave it a pure retailer) but there is not real news on the disposal and do indication of the likely price - although its continued and consistent good performance is very encouraging.
Boots the Chemist (the retail business for which Boots is best known) continued to perform in much the same way as it did last year. Like-for-like sales fell 0.8% (almost the same as last year) but expansion, particularly of specialist cosmetics shops (the Boots Health & Beauty format).
Part of the decline is due to regulatory price cuts on pharmaceuticals, however this should not have too much effect on margins as the brunt of the cuts will be borne by manufacturers.
Boots’ shrinking like-for-like numbers and growth through expansion are features it currently shares with a number of major retailers, even those in very different markets from Boots (we have been seeing much the same from the likes of >M & S). We do not therefore regard the continued shrinking of like-for-likes as a cause for concern, but are rather relieved that it has not been worse. However neither is there any solid evidence of a meaningful recovery.
At 606p Boots is on a prospective PE of around 12× and a yield of over 5%. The rating is cheap against the sector and the price is supported by the yield. We do not believe that Boots has yet proved that it can produce much growth but the sale of Boots Healthcare International should release enough value to leave Boots the Chemist (the business shareholders will be left with) with a rating at the bottom end of the sector.
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