Boots cash mountain sets poser

Many chief executives would love to face the problems taxing Sir James Blyth at Boots. Not only must he decide how to spend the near- pounds 900,000 he earned last year, but the company's burgeoning cash pile, swollen to pounds 600m by the sale of the drugs arm to BASF, will need a home, too.

One option is to increase earnings per share by an acquisition, with the most likely area being the fragmented over-the-counter drugs market, where Boots has a tiny share. Another is to undertake a further share buy-back following last November's pounds 500m purchase. Boots said yesterday that it would not rule out another buy-back, though it might be wary of appearing to have run out of ideas.

Elsewhere, the Boots money-making machine is motoring nicely. Boots the Chemist remains the principal cash generator. The 1,100-strong chain accounted for pounds 350m of group profits last year and the high street stores are proving remarkably resilient to pressure from the supermarket groups and other competitors, such as Superdrug, which are increasing their efforts in the pharmacy sector.

Here, the Boots brand is key. The WH Smith profits warning showed that it is difficult to add value to a copy of the Sun or a packet of envelopes, but such is the clout of the Boots brand that it can charge a premium for cosmetics and toiletries.

Witness the relaunch of the No7 range of cosmetics in February. Sales are up 40 per cent in the 13 weeks since the relaunch as the range was re-positioned from the middle to the upper sector of the market. UK market share is 9 per cent and rising. So while Smiths struggles, Boots saw like- for like sales rise by 3.9 per cent.

Halfords, once a headache, is improving as it shifts from the high street to out-of-town superstores. A total of 28 superstores opened last year and another 35 will be added this year. Childrens World is modestly profitable but Boots insists that expanding the chain will give it critical mass.

Boots' problem child is still Do It All, the troubled DIY joint venture with WH Smith. Though the chain is still a loss-maker (Boots' share was pounds 6.3m last year), a new store format is achieving better results and Boots must hope that if Texas Homecare can find a buyer, perhaps even Do It All has a price.

NatWest Securities is forecasting profits of pounds 515m next year and earnings of 35.7p. On yesterday's closing price that puts the shares on a forward rating of 14.3. In line with the market, and a good share to lock away, but don't expect any fireworks in the short term.