Mayborn dines out on high chairs

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The Independent Online
ONE OF the more remarkable rags-to-riches stories of the 1990s is Mayborn Group, a relatively small company with leading market shares in fabric dyes and infants' accessories. Despite rising 12-fold in price since early 1991 to 233p, the shares are still below their 1987 peak. But prospects look excellent.

The group's two main activities are experiencing healthy growth. A new factory for infants' accessories is coming on stream in China, partly to service Far Eastern markets, and Panmure Gordon, the company's stockbroker, is expected to upgrade its full-year profit forecast from pounds 5.2m to pounds 5.5m in the light of better-than-expected interim figures. These prospects are not fully reflected in a sub-market price-earnings ratio of 12.5 times forecast earnings. Nor do they do justice to the good chance of an earnings- enhancing acquisition being completed before Christmas.

The problems that drove the share price down so dramatically in the late 1980s and early 1990s stemmed mainly from a ill-judged acquisition in the US. The difficulties were compounded by the need to send UK executives across the Atlantic to sort out the mess. Eventually, the US operation was shut down. Distracted at a time when the UK economy was also under pressure, the group was briefly forced into losses, after exceptional items, and borrowings rose to around 100 per cent of shareholders' funds just when banks were nervous about maintaining facilities to heavily borrowed businesses.

Another acquisition of a florists' sundries business also turned sour. The chairman, Michael Samuel, said the company did the deal because independent research suggested years of strong growth lay ahead. In the event, supermarkets and high street rivals, such as Marks & Spencer, took an ever-growing share of the floral market. Mayborn has pruned the supply network, which should restore it to break-even in the current year, but a sale of the business is the most likely outcome.

In time-honoured fashion, Mayborn has rescued its fortunes by concentrating on its two core businesses. The Samuel family own, in total, over 60 per cent of the shares, based on their ownership of the fabric-dyeing business, Dylon. In a world of fast-moving high street fashions, fabric- dyeing is neither a large nor a booming market. But Mayborn has a market share in the UK that Mr Samuel admits approaches a monopoly. Growing export success has also given it perhaps 40 per cent of the European market, and made it probably the largest single player worldwide.

Mayborn is also using Dylon's brand awareness and distribution network to build up a household goods operation selling aerosol sprays in a wide range of niche markets, such as curtain-cleaning. A further boost was given to this operation in March, with the pounds 300,000 acquisition from administrators of Big D, a branded household goods business with sales between pounds l.5m and pounds 2m. Mayborn is looking for an immediate earnings contribution.

Infant accessories are Mayborn's main business. Bottles, teats, rattles, bowls, beakers, cutlery, teethers and the like are sold either as private label or under the Tommee Tippee brand name. The goods sell on quality and design rather than price and have a significant share of the UK market. Again, there is a fast-growing export business.

Given the static UK and European birth rates this might look like another mature market, but Mr Samuel points out that older mothers and rising standards mean that spend per baby is climbing by perhaps 10 per cent a year. Further impetus is coming from new product development targeting infants' toys and items for the slightly older nursery market.

Last but not least is a strategy of enhancing margins and growing sales via the new factory in China. The factory should be making a small profit by the second half of next year, and in time will become a big contributor with sales developing in the vast Chinese and Far Eastern markets, where well-designed Western products in corporating higher safety standards are much sought-after.

In the shorter term, the most likely development to kick-start the shares higher would be a sizeable earnings-enhancing deal. In the meantime, buyers of the shares can be reassured that the rating is modest - it could fall to 10 or 11 on likely 1996 profits even without a deal - and that the core businesses are going well.