More on Boots
Boots: trading statement
It ways a lot about Boots’ growth prospects that the company can describe 0.3% like-for-like sales growth (excluding the effects of the imposition of a reduction in pharmaceutical prices) as “another good Christmas”.
There are encouraging signs in Boots performance. The improvement in gross margin and strong growth in 7% growth in sales of “beauty” products (i.e. cosmetics). These are probably linked and this shift is important as it shifts Boots a little further from competition from the supermarkets. However there are been continued strong declines elsewhere which offset most of this growth even within the toiletries product category.
Boots Retail International did better with sales up 12.9%, but this is still too small a business to have much impact on the group as a whole.
Boots Healthcare International, the manufacturing business, also continued to perform well but as it is being sold it is now of little importance to investors in Boots.
We have previously commented on both the terms of the disposal of boots Healthcare International, and the merger with Alliance Unichem. To recap the combined business will be very different from Boots as it will cut its dividends (the yield will fall to about 2%) and continue Alliance Unichem’s policy of expansion through acquisition. In effect the combined business (in the form of Boots and Alliance Unichem shares) is trading on a prospective PE of around 12× - this is towards the low end of the sector range, but so is the yield.
The combination of two substantial businesses is likely to be difficult and neither is likely to produce much organic growth, so we would expect growth to be lower than that achieved by Alliance Unichem as a standalone business.
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