Investment: Wobbly wheels at Mayflower

SO MAYFLOWER has won the battle of the bus makers. But is it a hollow victory? Mayflower's pounds 269m cash bid values Dennis, the bus to fire engine group, at a generous 18 times forecast earnings.

Funding the deal from borrowings allowed Mayflower to trump Henlys' rival cash and paper offer when the markets wobbled. But it also leaves Mayflower looking dangerously leveraged - interest cover next year will be just three times - as the economy slows.

The suspicion is that, having failed in two bids in recent years - including last year's tilt at Vickers - Mayflower could not afford to walk away. John Simpson, the group's chief executive, has a reputation for squeezing extra productivity while stimulating growth at companies he takes over. However, in Dennis he is taking on his greatest challenge.

True, Mayflower has correctly identified bus making as a consolidating industry and Dennis as a unique asset. The question is: what does Mayflower bring to the table? Its US distribution business Metrotrans - acquired during the battle - is distinctly second-rate, and its strategic partnership with Daimler-Benz is still stronger on hype than detail.

Mayflower shares - unchanged at 132p yesterday - reflect these worries: they have lagged the sector by a fifth since Mayflower launched its bid and now trade on less than 10 times forecast 1999 earnings, including Dennis. However, it will take Mayflower at least a year - and a few nifty disposals - to show that the wheels are not coming off. Avoid.