View from City Road: GUS branches out bravely but is still a safe bet

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The Independent Online
Having spent the past five years pressing Great Universal Stores to enfranchise its 'A' shares, it was a little perverse of the market to spend yesterday wondering why it had done it. But the theories that emerged - ranging from a break-up of the group because Lord Wolfson has no son to succeed him as chairman, to a takeover of Next with the aim of bringing in David Jones as chief executive - are a lot more fun than the company's explanation that it was listening to shareholders and pre-empting a European edict.

The fact that the move was accompanied by a more general air of glasnost and a fivefold increase in the non-executive complement on its board suggests that it could simply have woken up to the 1990s.

The company's attitude to risk is changing, but only slowly. Including certificates of deposit and tax certificates (cautiously included in debtors lest the Government default), cash climbed from pounds 1.2bn to an estimated pounds 1.45bn.

Bravely, it has branched out into riskier instruments like gilts but the return on its holdings is likely to fall this year. And its plans for buying property and expanding its finance book will not make much of a dent in the pounds 200m-plus that the existing businesses will throw off.

Experienced GUS-watchers detected slightly more enthusiasm for acquisitions in yesterday's comments, although shareholders should not hold their breath. Given that it has more in common with conglomerates than high street retailers, the list of possible targets is as long as that of post-enfranchisement bidders for it - and the cash pile makes its pounds 4.9bn market value a bit more digestible.

Yesterday's figures suggest it needs little help in running its trading businesses. While the disclosure that the home shopping division benefited from pounds 47.4m of interest receipts makes the margin look a more pedestrian 8.7 per cent, compared with the 11 per cent-plus previously estimated, that still looks good compared with 4.3 per cent at the rival Freemans and 3.2 per cent at Grattan in the year before Mr Jones sold it. Returns from the Burberry and Scotch House business and the property division were also up with the best.

Shareholders should perhaps take their cue from one of yesterday's board appointments - Derek Roberts, who holds the same position at GEC. Where else would a company looking forward to many more years of pedestrian growth look for advice on managing its cash mountain? Shares in GUS should still be bought for their relative safety.

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