The Investment Column: Mayflower

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The Independent Online
MAYFLOWER'S SHARES have more than doubled in value since October, and are still rising. Investors are climbing aboard as the group, which makes chassis for buses and trucks, has bedded down its 1998 acquisition of Dennis, the truck business.

The benefits of recent acquisitions are coming through strongly. Over 80 per cent of Mayflower's automotive structures business is into the growing US light trucks market, which accounts for 50 per cent of US automobile sales. First-half US operating profits soared over 50 per cent to pounds 11m. On the buses side, Guildford-based Dennis, which makes bus subchassis, and Scotland-based Walter Alexander, which makes bus bodies, are working in harmony. Operating profits were up 260 per cent to pounds 17m. Through a new joint-venture agreement with DaimlerChrysler, the two subsidiaries have a decent distribution channel into the US.

Meanwhile, Mayflower said it should comfortably meet its full-year debt target of pounds 225m.

But results were in line with expectations and shares gained only 5.5p at 257.5p. Mayflower's acceleration depends on it continuing its advance in the US and capitalising on moves by bus service groups like Stagecoach and FirstBus into the US and Asia.

Mayflower has but a fraction of a global market estimated to be worth pounds 62bn. As for buses, Stagecoach's continued investment in its fleet could generate more business for Mayflower.

SG Securities expects pre-tax profits of pounds 55m and earnings of 17p per share this year, rising to pounds 65m and 19p in 2001. Of course, Mayflower is exposed to the industry's cyclical downturns, but its forward p/e of 15 seems too much of a discount in view of the potential upsides. Despite the technological revolution, you still can't get from A to B over the Internet and the shares are a buy.