The Investment Column: Waiting for Bass to spend its cash

What will Bass do with all its spare cash? That was the question on everybody's lips yesterday, overshadowing a decent set of results from the drinks giant. Lack of any definite news on acquisitions or a share buy-back was met with disappointment in the City and the shares rose only half a penny to 874.5p despite underlying operating profits for the year to September coming in slightly above expectations at pounds 796m (pounds 752m).

Bass is establishing a sizeable war chest. It has already earmarked pounds 2bn for acquisitions and could swell its coffers by another pounds 250m if, as expected, it sells Gala and withdraws from the increasingly troubled bingo industry. The final figure at its disposal could be some pounds 3bn if it sells the Coral betting shop chain, having lost out in the bid battle to buy rival William Hill.

As ever, Sir Ian Prosser, Bass's chairman, was coy yesterday about just what stage any acquisition talks had reached. All he would say was that Bass was keen to expand hotel chains in Europe and the Far East.

At least Bass's reluctance to chase the fancy price Nomura paid for William Hill suggests it won't splash out huge amounts of cash on a purchase just for the sake of it.

Bass was also at pains to say its largest institutional shareholders were not desperate for a deal and were quite content to wait for the group to pounce. Nevertheless, if Bass doesn't come up with the goods soon, say within the next 12 months, then it will no doubt be called on to launch a share buy-back. Either way, shareholders should benefit.

In the meantime, Bass's Holiday Inn chain should remain a resilient performer, even in the face of economic woes in the Far East.

As for pubs, Bass may not be getting the sort of returns that Scottish & Newcastle is achieving from its new investment, but it is still making more than 16 per cent.

Merrill Lynch forecasts current-year profits of pounds 779m, putting the shares on a prospective PE ratio of 14. Good value.