Boots: one step closer to the block

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Might Boots soon be on the move? The UK pharmaceutical retailer’s transfer of £4.8bn of pension obligations to insurer Legal & General brings its potential sale by owner Walgreens Boots Alliance one step closer.

The hard-pressed US group was forced to take Boots off the block last year, with pensions complexity cited alongside choppy markets. One of these problems, at least, has been fixed.

Boots, too, is doing rather better than it was, with retail sales in the 12 months to the end of August up 12.5 per cent.

That is not bad going for the chain. It operates in a tricky segment of the high street. Its prescriptions business is regulated and relatively low margin. Supermarkets — and Amazon — are on hand to provide cheap shampoo and emergency Nurofen. And Boots has a lot of shops — 1,900, after the latest round of closures — which need staffing and sprucing up.

Yet Boots does have one big thing going for it: the growing trend towards beauty and wellness. Consumers are increasingly willing to stump up for pricey creams and vitamins. Indeed, Boots’ sales of skincare products were up 24 per cent last year, with premium beauty not far behind.

Underlying operating profit was £407mn in the year to 2022. The figure has not yet been disclosed for fiscal year 2023. But, given retail sales growth and assuming a similar margin to last year’s, one might be looking at about £450mn. Put that on a 10 to 12 times ebit multiple, broadly in line with the UK’s high street retailers, and it yields a valuation of £4.5bn to £5.5bn. That is not far off the numbers which were touted during last year’s sale process.

None of this suggests that buyers will be queueing up at the cash register. The private equity world, in particular, is still constrained by high interest rates and debt availability. Yet, with Boots’ parent WBA desperately seeking a new growth prescription, the time to restart a sale process is inching closer.