TEAM Concepts has evolved from being a one-product, two-client manufacturing company into an attractive industrial group with diversified production base and product lines. The teething problems connected with the transition have dogged both Team Concepts' profits and its share price, but the benefits will shortly come through. Team Concepts was listed in early 1991, when it was a very narrow manufacturer of telecommunications products, focusing on answering machines, primarily for British Telecom and Scandinavian Telecom. As the European recession began to bite, sales plummeted, and the company was forced to rethink its strategy. The result has been the immensely successful diversification into brand-name educational toys, and its position as the third-largest producer for the US market. Earnings have subsequently been volatile. In the year to March 1991 earnings per share rose 36 per cent; in 1991-92 they fell 50 per cent; and in 1992-93 they rose 103 per cent. The outlook is for more consistent growth. Goldman Sachs is forecasting a 10 per cent profit increase to $40 million for the current year, which, at last night's closing price of $1.53, would put the shares on a price-earnings multiple of 7.9. The forecast dividend per share of six cents would give the stock a yield of four per cent. The current year is one of consolidation, as the company carries the financial burden of its expansion programme without reaping the full benefits. It is currently highly geared, with net debt of $149 million. However, this is attributable to the costs of substantial new production facilities in Dongguan, which are scheduled to open within the next few months. This will provide substantial benefits for the company, enabling it to shut down existing higher-cost production in Hong Kong. It will also open up the possibility of sales into the Chinese market. In the year to March 1993, educational toys accounted for more than 40 per cent of profit, and this remains a high growth area. The potential for sales into China, with its 400 million children, is staggering. Meanwhile, the company has gained ISO certification for its products, giving it greater access to quality brand names for original equipment manufacturing. China's tenuous grip on its Most Favoured Nation status with the US has always been a cause for concern when investing in Hong Kong manufacturing companies, but the bulk of Team Concepts' production is in Malaysia. After significant teething problems when it started production in Kedah, it has achieved a high level of efficiency. However, cheaper Chinese labour costs mean that the Dongguan plant will enable Team Concepts to improve its profit margins. Goldman expects profits to jump 26 per cent in 1995 to $55 million, putting the shares on a PE of 6.3. The brokerage has a share price target of $2 over the next six months, a 31 per cent increase from yesterday's closing price. The shares therefore look worth picking up.