Bottom Line: Manders justifies shareholder faith

MANY found it difficult to understand how Manders, the inks company based in Wolverhampton, managed to fend off an aggressive pounds 90m paper takeover bid from the paints company Kalon two years ago.

Kalon, brimming with confidence and trendy late-1980s management nostrums, was defeated despite a glittering financial record that put Manders' apparently pedestrian performance to shame. But Manders is beginning to justify the faith shareholders placed in its management.

Along with its paint and ink manufacturing businesses Manders owned a shopping centre in Wolverhampton. But late last year it sold its paints business for pounds 55m and shortly afterwards beefed up the inks operation with the purchase of Croda's ink interests for pounds 26m.

The shopping centre is on the market, too, and indications are that it will fetch pounds 80m - pounds 25m more than book value.

In inks, always the company's most promising area despite Kalon's longing for its paints, Manders has identified a good- growth, high-margin business and has an experienced management in that field.

At 400p Manders' shares are trading at 22 times projected earnings per share for 1993 and a yield of 3.1 per cent is below the market average.

Profits this year may fall, ignoring one-off asset sales, because it will have lost the income stream from paint and property, which is hard to replace at current interest rates.

But the company has pounds 75m of cash to spend on further acquisitions and on capital investment, both of which should enhance earnings. Manders has considerable attractions if you are willing to wait a couple of years. Buy.