S&P advises against buying Dynasty IPO, in part because fan maker has few clients.

S&P advises against buying Dynasty IPO, in part because fan maker has few clients

Plans $21 million offering

Standard & Poor's, the investment advisory service, is no fan of the initial public offering of Dynasty Classics, a Carson-based importer and manufacturer of decorative lights and fans.

According to S&P, "A number of lighting fixture companies have gone public over the last few years. Many of the stocks initially performed well, then declined substantially, mostly because product differentiation and the benefits of new marketing ploys often didn't last beyond a single season."

The $21.3 million Dynasty Classics stock offering will be handled by Morgan Stanley and Salomon Bros.

S&P noted that major buyers of Dynasty Classic lights and fans are the Price Club chain (which accounted for 37 percent of Dynasty Classic sales), Sears (19 percent) and Costco Wholesale (12 percent).

The stock offering proceeds will be used to pay down outstanding short-term debt and redeem outstanding preferred shares.

Dynasty Classics relies upon styling, packaging and pricing, and provides "turnkey" service crews that set up point-of-purchases displays and advertising programs.

S&P noted two major negatives with Dynasty Classics: It has a very short customer list -- making it vulnerable if one buyer suddenly goes cold -- and the additional 4.7 million shares that can be sold to the public, which could dilute the value of the 2 million shares issued in the IPO.

S&P said, "We believe Morgan Stanley has priced the deal with the assumption that revenues will more than double in 1990. Otherwise, the deal is way overpriced....Even assuming sales double and the net margin expands, the shares are still scheduled to go public at 12 to 14 times earnings. We do not recommend purchase at this time."

Dynasty Classics posted a net of $1.92 million on revenues of $60.4 million in 1989.