Bottom Line: Questions for GUS

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The Independent Online
IT WOULD perhaps be churlish to expect Great Universal Stores to come up with proposals for using its pounds 1.5bn cash mountain so soon after the culture shock of enfranchisement of its voting shares. But investors may like to use their new power to ask whether it has any.

Yesterday's comments from GUS were predictably opaque. If it could find a business to invest in, it would - but it is not talking to anyone. It would be interested in European mail order - but the two gaps, France and Germany, are already tied up by domestic companies that are not for sale. It has considered giving the cash back to shareholders - but it is not prepared to reveal the outcome of those ruminations.

For the first time in years, the build-up of the cash mountain is detracting from, rather than enhancing, the robust performance of the group. Cash balances have risen by more than pounds 140m since the year-end, but lower interest rates meant that the income from them dropped pounds 6.9m to pounds 51.6m.

Given the trend in interest rates - and the fact that investment in mail order means less cash will be generated in the second half - the returns are likely to fall below the 6.7 per cent achieved in the first.

GUS's dilemma is shared by Glaxo and GEC, which have almost pounds 4bn between them. While Glaxo has been achieving returns of about 10 per cent, that surely cannot continue. And GEC should be able to generate more than 6.25 per cent from acquisitions.

Some cash is leaking back to GUS shareholders. If the 16 per cent increase in the interim payment is continued in the final, cover will drop from 2.9 to 2.7, but the yield will still be a less than generous 2.8 per cent.