The past 12 months have proved a torrid time for most AIM companies. The market’s benchmark indices – the AIM All Share, AIM UK 50 and AIM 100 – have suffered significant falls, dropping 55 per cent to 823.4, 25 per cent to 4251.5 and 25 per cent to 4216.4 respectively.

Research conducted by Growth Company Investor has unearthed the fact that 28 companies have shed more than 90 per cent of their value over the past 12 months, with 58 ventures having lost 80 per cent of their value or more.

Needless to say, many of these falls are merited, reflecting woeful trading, serial profits alerts, funding crises or exposure to the worst hit sectors as the downturn bites in earnest. The number one faller is the disaster hit hedge fund manager Absolute Capital Management, which tops our table with a valuation reduction of more than 99 per cent.
However, for many companies whose share price has suffered, cases can be made for market falls having been substantially overdone.
 
Oversold stars
Among the fallers are a number of fundamentally sound businesses, oversold stars and turnaround situations to which the wider market has yet to cotton on. The ranks are also littered with a number of property-related ventures whose shares have fallen on negative sector sentiment, even though the companies themselves are trading fairly well.

East London focused residential developer Telford Homes has seen its shares slump by 70 per cent to 100p as conditions go from bad to worse in the wider housing market.

However, the derating of its shares ignores the fact that the company operates in a part of London undergoing regeneration ahead of the 2012 Olympics and where a large amount of spending is committed – Telford is well known for its regeneration projects and its strong links with affordable housing providers. Moreover, the company claims a robust business model, in which it de-risks through preselling homes.

Telford also has a strong recent track record, with a 31 per cent pre-tax increase to £17.7 million from turnover lifted almost 55 per cent to £160.4 million for the year to March – the total dividend rose from 8.9p to 10p per share.

Insulation from Inland
Brownfield property developer Inland is off 74 per cent at 13p on investor worries regarding the state of the UK housing market. However, this ignores the flexibility the company has in terms of its brownfield portfolio – sites are bought up and value-enhanced through planning permissions – since the company can also target non-residential usage by directing sales towards hotel groups, public sector buyers and housing associations.

Forthcoming results for the year to June will meet market expectations, following the successful disposal of five sites in the last quarter, and the company remains confident in its ability to create value from the portfolio. Furthermore, its focus exclusively on the South East, where property values are likely to remain a lot more stable, offers insulation.

Davenham – falls overdone
Led by astute chief executive David Coates, asset-based lender Davenham has dropped 71 per cent this past year to 97.5p – which compares with a 2005 issue price of 254p – on worries about its exposure to the under-fire UK SME sector.

At first glance, perhaps this isn’t the best market to be lending to in current economic climes, and Coates readily admits that recent trading has been more challenging. However, he says that full-year results for the year to June will meet market forecasts, reflecting the strict lending risk controls built into the business over recent years, as well as a more cautious approach to loan growth, especially in its property division.

Moreover, the company continues to benefit from strong demand for its asset and trade finance products, as the credit crunch has made clearing banks more cautious in these areas.

Last year, Davenham grew profits by 17 per cent to £12.1 million and, based on forecasts in the market for June 2008 (profits of £13.3 million, 37p of earnings and a 16.9p dividend), the shares look dirt cheap on a price-to-earnings ratio of 2.6, while offering a yield of more than 17 per cent.

Theo keeps its sparkle
Luxury brand play Theo Fennell has been sold down by more than 70 per cent to 38.5p, with the market worried about the effect of the downturn on consumer appetite for its high-quality jewellery and watches.

Nevertheless, financials for another record year to March were impressive, with turnover increasing from £25.4 million to £28.1 million and pre-exceptional pre-tax profits sparkling at £1.9 million, a 16 per cent increase year on year. Given its brand strength, international expansion opportunities, recent record and robust finances (year-end net cash of £945,000 and unused bank facilities of £5 million) the company can consider itself unlucky to have seen its shares lose their sparkle.

Turnaround potential
A spate of director buying, including purchases at 20p by CEO Andrew Fickling and FD Andrew Fletcher, indicates a likely valuation anomaly at Sport Media Group, the company behind the Sunday Sport and Daily Sport newspapers and supplier of
saucy content for mobiles and the internet.

Shares in the acquisitively transformed company – Sport Newspapers reversed into AIM-quoted Interactive World last year – have slipped almost 80 per cent to 16.75p, not helped by a trading update twinned with interim figures in which questions were raised about the company’s ability to hit full-year numbers, given a delayed relaunch of the Daily Sport and a more cautious view on growth.

Nevertheless, interims to January were awash with positives, including 180 per cent acquisition-driven top line growth to £14.4 million and a 48 per cent rise in underlying pre-tax profit to £3.2 million. Based on a full-year earnings forecast of 4.89p
and 4p dividend, the shares look oversold on a prospective multiple of 3.4, even after recent disappointments. A yield of nearly 24 per cent means this is a fantastic entry level for investors.